MoneyMarketing September 2018

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30 September 2018 | www.moneymarketing.co.za

First for the professional personal financial adviser

WHAT’S INSIDE

YOUR SEPTEMBER ISSUE

THE BUSINESS OWNER’S GUIDE TO INSURANCE MoneyMarketing's guide to investing offshore in volatile times

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Small business owners must protect their most valuable financial asset – themselves

Page 14

Platforms give advisers more time with their customers Investment platforms have evolved to play a dominant role in many markets, helping financial advisers improve efficiency and profitability. We spoke with Caroline NaylorRenn, Chief Operating Officer (COO) of the recently launched INN8 platform, about how platforms have transformed the investment landscape, simplifying administration and increasing investment choice.

Caroline Naylor-Renn, COO, INN8

What are your thoughts on the financial platform industry in South Africa and how does it differ from the other countries where you’ve worked?

The industry here is very interesting and there are some things that South Africa is ahead on – for example, the use of mobile technology for banking and the fact that platform fees are already quite

low compared to some jurisdictions.

Where investors are concerned, the fluctuating currency and economic volatility mean offshore investing is more important here than in other economies. Also, customers in SA appear more engaged with economic and financial affairs in general. There are, for example, more radio and TV shows about personal finance and investments than in any of the other markets I have worked.

However, there are also many common themes across financial platforms globally. Issues including portfolio diversification, the impact of regulatory change like the retail distribution review (RDR), the evolution of financial advice, and the trend towards being customer-centric are important considerations in all markets.

It’s been great getting to know the local market and customer traits, which is what makes my job interesting. For example, clients in Asia want to see lots of data and are very comfortable with high risk and volatility, whereas clients in the UK are more interested in a simple customer journey with a brand they trust.

Where do you see the financial platform industry going?

Many developments will be driven by advisers expecting more from platforms so that they can spend less time on administration and more time seeing clients. To ensure that it meets their specific business needs, advisers are doing more due diligence on their platform of choice.

Advisers expect more from platforms, this is not just in terms of execution, but through added-value services that help them grow their business by becoming more digital, with better trained people using efficiency-enhancing technology.

Advisers will expect more collaboration, more data and more integration of platforms into their business processes.

Could you give a few everyday examples of how using a platform can transform a business?

Platforms increase efficiency and effectiveness. They give advisers more time with their customers and reduce the administration burden by eliminating paper, keying straight into the website before submitting online.

Platforms also give the adviser much more scope to self-serve. There’s no need to phone and wait for a valuation or an update on the transaction submitted because you can follow the transaction or query online at any time.

The best platforms make advisers feel better supported, receiving excellent customer service from knowledgeable people and a dedicated onboarding team to support them while they get the hang of the new website.

Other benefits include better access to quality information, world-class research tools, transparency of transactions, and customer-friendly communications and documents. Importantly, platforms give fast access to the market. Trades are placed quickly without the delay of re-keying or mistakes, because of the straight-through processing.

120 months 521 weeks 3,652 days 87,648 hours 5,258,800 minutes and still committed to you.

Thank you for choosing Laurium. Here’s to the next 10!

We know Investments

T +27 11 263 7700 E laurium@lauriumcapital.com www.lauriumcapital.com Laurium is an authorised financial services provider (FSP No 34142).Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.lauriumcapital.com.

NEWS & OPINION

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NEWS & OPINION

30 September 2018

Winners of inaugural Asterisk Awards announced

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EDITOR’S NOTE

lexander Forbes Investments is for the Award quantitative criteria and a score based on first time sponsoring three new awards a qualitative assessment of the House performed to recognise the leaders of the South

by Alexander Forbes’ Manager Research Team.

African investment schemes industry and The ESG award focuses on funds that have identify the year’s most exceptional funds and scored highly in the ESG component of the fund managers. qualitative review performed by the Alexander The inaugural annual awards, to be Forbes Manager Research Team together known as the Alexander Forbes Investments with the Best Equity Fund Award quantitative Asterisk*Awards, were presented at the annual criteria.

Financial Planning Institute of Southern The winners were: Africa (FPI) gala dinner on 22 August 2018.

• Best Equity Fund Award 2018 went to Aylett The awards are the Best Equity Fund Award, Equity Prescient A1 managed by Aylett & Co Best Equity House Award and Environmental, Fund Managers. Runners-up were Fairtree Social and Governance (ESG) Award. They are Equity Prescient A1 managed by Fairtree awarded to investment managers participating Capital, and Investec Equity R managed by in the ASISA SA General Equity category.

Investec Asset Management.

“The Alexander Forbes Investments • Best Equity House Award 2018 went to Asterisk*Awards seek to recognise fund Fairtree Equity Prescient A1 managed by managers who demonstrate evidence of Fairtree Capital. Runners up were Aylett investment skill by incorporating in their Equity Prescient A1 managed by Aylett & Co quantitative ranking criteria measures that Fund Managers, and PSG Equity A managed explicitly look to capture manager skill.

by PSG Asset Management.

Measures based purely on performance, or • Environmental, Social and Governance even risk-adjusted performance, often fail (ESG) Award 2018 went to Investec Equity R to differentiate between the managed by Investec Asset impact of skill and luck in Management. Runners up were investment outcomes,” says Leon Prudential Equity A managed THE COMPANY Greyling, CEO of Alexander

by Prudential Investment INFLUENCES OR Forbes Investments.

Managers, and SIM Top Choice CONTROLS THE “We believe that manager Equity A1 managed by Sanlam skill, rather than pure past Investments.

PLACEMENT OF performance, is more likely OVER R700BN OF to provide evidence of the Greyling says Alexander SAVINGS IN SA potential for superior investment Forbes Investments has been outcomes going forward, and successfully researching and AND ABROAD we have thus incorporated this selecting investment managers thinking into our award criteria,” Greyling adds. and strategies for 21 years. The company To qualify for consideration for the inaugural influences or controls the placement of over awards, funds should have had at least R250m R700bn of savings in SA and abroad. In of assets under management as at the end of addition, Alexander Forbes’ strategic alliance June 2018, as well as a track record of at least partner and anchor shareholder, Mercer, advices five years, and should have been in the top more than US$10tn in assets worldwide.

90% of funds within the category by assets “We are proud to draw on its deep experience under management. in selecting the winning investment managers, The Best Equity Fund Award was awarded and to drive the evolution of the investment to the fund that demonstrated the greatest management industry in South Africa by performance, risk management and manager recognising the funds and fund managers skill over the medium and long term; the Best exhibiting true consistent skill in achieving Equity House Award considered fund houses superior market returns through our inaugural that have at least one fund qualifying for Alexander Forbes Investments Asterisk*Awards. consideration for the Best Equity Fund Award.

In years to come, we plan to expand the range Nominees for this Award were judged based of awards granted across additional categories,” on a combination of the Best Equity Fund Greyling adds.

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he year has flown by, and this month we publish our final Offshore Supplement for 2018. While there is always some uncertainty in global markets, there appears to be no evidence yet that the ‘raging bull’ narrative will change into a ‘fading bull’ one.

The recent slump in Turkey’s lira shouldn’t have come as a surprise to anyone. Turkey’s economy has been overheating and inflation has been on the rampage. Not much was needed to push the country over the edge, so when President Erdogan stopped the Turkish central bank from raising interest rates and the country’s spat with the US over Turkey’s imprisonment of an American evangelist escalated, the inevitable occurred.

But as Turkey accounts for around only 1% of the world economy and as its stock market is tiny, contagion was limited – although other emerging markets, like SA, were victims.

Over in the UK, it appears that a hard Brexit is now a likely outcome. However, the government has just released a series of technical impact assessment papers on what to expect if a deal isn’t reached, including a paper on financial services, as well as covering subjects such as regulating medicines and the impact on trade. While Brexit Secretary Dominic Raab insists he’s confident of finalising a deal in time, he is clearly making provision for all outcomes.

Meanwhile, the good news is that Greece has made an exit from its third eurozone bailout programme, following a lengthy period under the watchful eye of the European Commission, European Central Bank and IMF. Over eight years, the country borrowed a total of €260bn.

Will it pay back the money? Absolutely not!

But that is a discussion for another time.

No one can be sure what’s next for the markets – and of course there are a number of doomsayers around. Many moons ago I edited a local publication headquartered abroad, whose global publisher kept telling me to expect a world market meltdown.

He said that every day for three years running. Eventually he was right.

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

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PROFILE

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NEWS & OPINION

30 September 2018

GREG STOCKTON, MANAGING DIRECTOR (JOINT), CARRICK WEALTH

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

Having had success in a previous sales role I was given an opportunity in 2003 at 20 years of age to move from the UK to Hong Kong to join a firm and learn about the international financial services world.

I had always enjoyed the client-facing aspect of business but at that stage had never considered financial services as a career. After being in Hong Kong for just a few months I was hooked on financial services and knew very quickly this was going to be my career path.

The ability to build a business in an environment that constantly changes while helping people plan towards their financial futures is a great honour.

What makes a good investment in today’s economic environment?

It really comes down to what stage of your life you are currently at.

For a younger client who is in a wealth creation phase, the ability to be more aggressive with investment choices is possible. Balance is always key but a heavier equity weighting towards growth assets would be ideal.

For a client who has gone through the creation phase and is now sitting on capital, investing in assets that can provide steady consistent growth with lower volatility is favoured.

For the older client that is close to or in retirement, taking risk off the table to secure the capital would be recommended.

Fixed income/capital protected products that provide income while protecting any market downturn make sense.

That said, everyone’s circumstances are different, so finding an adviser that asks the right questions and takes the time to understand the client is important.

Be careful of anyone just trying to ‘sell’ an investment without understanding you as the client.

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

My first investment was a simple regular savings plan for retirement purposes in which I was investing $750 per month. I still have the plan, however, I am now investing slightly more on a monthly basis.

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

My best/proudest financial moment was cashing in a regular savings policy I had been saving into for 10 years to give to my sister for her college fees. The ability to create wealth over a long term by making consistent payments is an aged old method but it definitely works.

My worst financial moment was investing into a plot of land in Brazil which turned out to be a scam.

Even the best of us get duped from time to time. I was rushed at the time in making the decision and didn’t do the proper due diligence. I just trusted my friend who was selling the investment from Dubai.

A few lessons were learned from this for sure.

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

I don’t particularly have a ‘best book’ as there is always something you can take from every book you read. I enjoyed reading Rich Dad Poor Dad, Think and Grow Rich, Freakonomics and the Black Swan and am also currently re-reading my fiancé, Niyc Pidgeon’s book Now is Your Chance.

Do you own Bitcoin? If not, why not?

I spent some time trading Bitcoin last year, made some money, but also lost some. At this present point I do not hold any Bitcoin due to not really having a personal appetite or time for managing crypto accounts. I’m not really fully clear on the future of crypto or blockchain and therefore I’m not comfortable making heavy investments into them.

UPS & DOWNS What is now the longest running US bull market in history started on 9 March, 2009 when the S&P closed at 676, the bear market low. Since then, the S&P 500 has gained over 300%.

On August 22, the US bull market turned 3 453 days old. This put it a day beyond the bull market that ran from October 1990 and finished with the bursting of the tech bubble in March 2000.

US electric car company Tesla saw its shares plunge 8.9% on 17 August – its worst day in two years. This followed a New York Times interview with the company’s CEO, Elon Musk, in which he said he takes the sedative Ambien and works 120-hour weeks, due to the ramping up of production of Tesla’s Model 3 vehicle.

Last month, Musk also tweeted that he had secured funding to take Tesla private at $420 per share. This could be considered a violation of the US Securities and Exchange Commission’s rules.

VERY BRIEFLY MUA Insurance Acceptances has announced the appointment of Michelle Ashen-Abrahams as Head of Brand and Marketing.

The position was recently created by the MUA Board as part of the company’s new brand Michelle Ashenand marketing strategy.

Abrahams, Head of Ashen-Abrahams has over Brand and Marketing a decade of short-term insurance experience and has worked on some of South Africa’s largest corporate identity change projects. These include Santam’s award-winning Ben Kingsley campaign in 2012, Regent Insurance in 2014 and more recently Nedbank. Dawie Loots, CEO of MUA, says that aside from extensive client experience, AshenAbrahams also brings a lot of enthusiasm to the position. “Our brokers and clients have a lot to look forward to in terms of MUA’s marketing strategies with her joining the MUA team,” he adds.

Allianz Global Corporate Speciality (AGCS) Africa has appointed Boitumelo Moate and Nomsa Mathega as junior underwriters in Financial Lines. Financial Lines insurance addresses the liabilities of managers and professionals in today’s increasingly litigious and demanding business environment.

“I’d like to warmly welcome Boitumelo and Nomsa to AGCS Africa.

I look forward to their contribution as we move towards our vision of Boitumelo Moate being a benchmark and Nomsa Mathega, corporate and specialty Junior Underwriters in Financial Lines, insurer in Africa. They AGCS bring a fresh outlook and ideas to the company as we aim to be the best place for harnessing young talent through empowerment, technical excellence, meritocracy, collaboration and innovation,” says AGCS Africa Head of Financial Lines Nobuhle Nkosi.

Nedgroup Investments Cash Solutions has launched a new US dollar liquidity solution that will enable investors to park their surplus dollar cash. “In light of the current and likely prevailing rising US interest rate outlook, we believe that it is the perfect time to launch this new US dollar liquidity solution. We have partnered with BlackRock to launch a dedicated ‘N’ class of the well-established ICS Institutional US Dollar Liquidity Fund, which is registered in terms of S65 of CISCA. This is now available for the exclusive use of Nedgroup Investments Cash Solutions clients.”

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6

NEWS & OPINION

DR DES LEATT Skills Specialist, Compli-Serve SA

We look at the competence requirements described in Board Notice 194 in terms of experience, qualifications and regulatory exams.

Expectations for FSPs All financial services providers (FSPs) must establish adequate policies and internal systems to ensure that key individuals and representatives: • Comply and continue to comply with these regulatory requirements • Discharge their duties in line with these competence requirements • Possess the necessary general and technical knowledge • Are appropriately trained • Undertake continual professional development (CPD) • Can assess the appropriateness of their financial services • Are competent to render financial services • Ensure that staff who are not appointed as representatives do not render financial services.

30 September 2018

Understanding ‘Fit & Proper’ – what are the requirements for competence?

General competence responsibilities of an FSP An FSP must be able to demonstrate that it has evaluated and reviewed at regular and appropriate intervals: • Its representatives and key individuals’ competence, and has taken appropriate action to ensure they remain competent for the activities they perform; and • The appropriateness of the training and CPD referred to above. When conducting a review, FSPs must consider technical knowledge, skills, expertise and any changes in the products and market.

Fit & Proper requirements A new requirement set out in Board Notice 194 is that an FSP must notify the Commissioner immediately if it becomes aware that a key individual does not comply or no longer complies with any of the Fit & Proper requirements.

These requirements are minimum requirements and compliance with these requirements does not in itself serve as evidence that a person complies with the Fit & Proper requirements.

Consumers partnering with advisers ‘more confident’ about finances

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t least 70% of consumers with a financial adviser are more confident about their current financial situation. In addition, they believe that their financial situation will improve significantly over the next five years.

These are just some of the insights that have been revealed in a recent research study conducted by Columinate, on behalf of Liberty, to understand how people relate to financial advisers.

The research reveals that 22% of the respondents without financial advisers believe that they are too expensive, while 19% believe that financial advisers won’t add value to their lives.

“This piece of research identified interesting facts and some misconceptions about the people that play an important role in helping consumers plan for life’s uncertainties, including building wealth throughout different life stages,” says Johan Minnie, Liberty’s Group Executive, Distribution and Bancassurance.

“As an industry, we understand the dynamics and nuances of the economy and the impact it has on our savings culture. The reality is that everyone needs help in navigating their financial journey, and this

An FSP must now establish, maintain and update a competence register in which all qualifications and successfully completed regulatory examinations, class of business training, productspecific training and CPD are recorded.

Minimum experience requirements In each category, the requirement for one year’s experience in the management and oversight of the respective key individual MUST emanate from their applicable financial services.

The experience gained by a key individual of a Category I FSP lapses when the key individual has not managed or overseen the rendering of their applicable financial service for five consecutive years.

The experience gained by an FSP or a representative lapse when the FSP or representative has not rendered the applicable financial service for five consecutive years.

Recognition of qualifications The Commissioner, on application or on own initiative, may recognise a qualification as appropriate for each of

is where financial advisers become valuable. The issue of cost is a real concern for many. However, a financial plan and solutions are always tailored to the client’s individual needs,” Minnie adds.

Financial adviser at Liberty, Carlo Gil, says: “As advisers, we need to continue working towards educating consumers on the value that we bring in ones’ financial journey.”

Insights from the research include: • Those with financial advisers were more likely to be males between the ages of 35 and 44 years • Around 70% of consumers that partner with a financial adviser claim to be better off • Only one-quarter of those without a financial adviser have seen marginal improvements in their financial growth. However, almost half of those without financial advisers have remained stagnant or have watched their financial situation get worse over a period of five years • One in five South Africans would appreciate the input of a financial adviser; they just don’t trust them enough to pursue this relationship • Only 21% are very or extremely likely to get an adviser and when asked why, said that they would appreciate the value-add of advice • Both those with financial advisers and those without say they need more advice from advisers on how to grow their wealth – this is a need for consumers (31%) that is currently not adequately addressed.

“Dialogues of this nature are not only important for the financial services industry, but for the South African consumer at large. What consumers need to be aware of is that financial advisers and insurers

the categories of FSPs. An application for recognition of a qualification must be submitted in the form and manner determined by the Commissioner, and a list of appropriate subjects can be found on the Financial Sector Conduct Authority (FSCA) website.

Very specific and important qualification requirements apply to representatives appointed to perform execution of sales.

Regulatory examinations Regulatory exams apply to ALL FSPs, key individuals and representatives.

They do NOT apply to: • A Category I FSP, its key individuals and representatives that render financial services ONLY in respect of Long-term Insurance A and/or Friendly Society Benefits; AND • A representative of a Category I FSP that is appointed to perform ONLY the execution of sales in respect of a Tier 1 financial product, terms & conditions apply.

• A representative of a Category I FSP that is appointed to render financial services ONLY in respect of a Tier 2 financial product.

operate within tightly legislated environments; and have a duty to treat customers fairly at all times,” adds Jay Naidoo, Liberty’s Divisional Director for Distribution Transformation.

“Guiding clients to achieve and attain their financial goals and aspirations requires coordination and collaboration from both client and adviser. To this end, Liberty is focussed on ensuring that our advisers are fully capable of providing the optimal level of service and support to the clients they engage with,” she says.

Johan Minnie, Group Executive, Distribution and Bancassurance, Liberty

Carlo Gil, Financial Adviser, Liberty

Jay Naidoo, Divisional Director for Distribution Transformation, Liberty

15991_Asterisk*Awards_2018

Congratulations to the first winners of the inaugural Alexander Forbes Investments Asterisk*Awards 2018.

In partnership with the Financial Planning Institute (FPI), Alexander Forbes Investments launched the Asterisk*Awards at the FPI Awards on 22 August 2018. The Asterisk*Awards align with Living*InvestingTM, our forward-thinking investment approach, by acknowledging investment managers that demonstrate consistent investment skills.

The following awards were awarded to the following winning managers:

BEST EQUITY FUND AWARD 2018 Manager: Aylett & Co Fund Managers Fund: Aylett Equity Prescient A1

BEST EQUITY HOUSE AWARD 2018 Manager: Fairtree Capital

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) AWARD 2018 Manager: Investec Asset Management Fund: Investec Equity R

Alexander Forbes Investments is committed to the development of asset management skill in Africa. The growth and development of our industry is paramount to ensuring value is created for our investors.

These awards represent the start of our journey – we aim to create more awards in future.

In Pursuit of Certainty!

Alexander Forbes Investments Limited, Registration number: 1997/000595/06 is an authorised Financial Services Provider (FSP 711) under the Financial Advisory and Intermediary Services Act (No. 37 of 2002).

15991_Asterisk*Awards_2018

Alexander Forbes Investments Limited, Registration number: 1997/000595/06 is an authorised Financial Services Provider (FSP 711) under the Financial Advisory and Intermediary Services Act (No. 37 of 2002).

INVESTING

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INVESTING

30 September 2018

TIM HUGHES Director of Corporate Affairs, Warwick

B

y pre-emptively committing South Africa to land expropriation without compensation (EWC) before the findings of the Parliamentary Constitutional Review Committee are released, has Cyril Ramaphosa painted himself into a corner that will threaten his presidency, or is he deftly playing a high-risk game of poker with populists inside and outside of his party? Recall that the EWC motion passed by Parliament (241-83) in February this year was moved by the Economic Freedom Fighters (EFF) Commander in Chief, Honourable Julius Malema MP, as amended by the ANC. Land has been a highly divisive and disputatious issue in South Africa long before white settlers arrived and will be so long after Ramaphosa leaves office. Yet land reform in South Africa since the advent of democracy in 1994 has been a qualified failure. The Reconstruction and Development Programme set a fanciful target of 30% of white agricultural land to be transferred to black people by 1999. However, research conducted

by Dr Aninka Claassens of the

The high-stakes game of land poker

University of Cape Town notes that five years into democracy, just 1% of white agricultural land had been transferred. Five years later, a mere 3% had been transferred and by 2013, a total of 6.5%. Just 23% of new land beneficiaries have been women. At the current pace of land reform, UCT estimates it will take some 700 years to meet the needs of the 397 000 registered claimants.

This is clearly unacceptable, but here’s the rub: Claassens reports that the portion of the national budget allocated to land reform last year was a mere 0.14% (the lowest figure since 1994) and the figure has been declining for a decade.

At this point it is important to note that Chapter Two (the Bill of Rights) Section 25 of the Constitution already permits expropriation of property for a public purpose or in the public interest. The Expropriation Act of 1975 codifies the exact modalities of expropriation. So, amid the fire, fear and fury regarding future Government policy, it is worth revisiting exactly what the ANC 54th Policy Conference resolved in December 2017:

“Expropriation of land without compensation should be among the key mechanisms available to government to give effect to land reform and redistribution. In determining the mechanism of implementation, we must ensure that we do not undermine future investment in the economy, or damage agricultural production or food security. Furthermore, our interventions must not cause harm to other sectors of the economy.”

The resolution goes on to specify that the ‘interventions’ should focus on government-owned land, prioritise the redistribution of vacant land, as well as land held for speculation and ‘hopelessly indebted land’.

What’s more, the resolution requires that accelerated land reform must be conducted in an ‘orderly manner’, requiring strong action to be taken against those who occupy land unlawfully. Calling for clear targets and timeframes, “the programme must be guided by sound legal and economic principles and must contribute to the country’s overall job creation and investment objectives”.

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LAND REFORM IN SOUTH AFRICA SINCE THE ADVENT OF DEMOCRACY 1994 HAS BEEN A QUALIFIED FAILURE

This all sounds reasonable if carried out to the letter, but policy never is. Indeed, numerous dangers lurk behind the accelerated EWC model that need to be flagged lest they lead us down the path to Zimbabwe.

For example, Section 25 of the Constitution enshrines the right to property. But ‘property’ is a far broader and more complex concept than merely land. Thus, one of the dangers of altering Section 25 is opening the Pandora’s box of undermining all property (corporeal and incorporeal) rights and ownership, not just land.

The second is the problem of the original sin. That the racially exclusive 1913 and 1936 Land Acts were iniquitous, unjust and laid the foundation for grand apartheid, is unquestionable. But that they were the genesis of all current land disputes, displacement and racial injustices is inaccurate. Focus on the restoration of land claims from the 1913 or 1936 Land Acts ignores previous centuries of conflicted land ownership and use patterns, as well as the claims of indigenous or first people, namely the Khoisan.

Thirdly, usage of previously whiteowned land now under the ownership and stewardship of previously disadvantaged communities since 1994 is largely disappointing. As much as one third of all projects have been effectively abandoned. It has become painfully clear that transfer of land to historically disadvantaged people, without commensurate capital, stock, plant, equipment, training, agricultural inputs, agronomy, managerial and indeed marketing skills, is a recipe for failure and potentially, the exacerbation of poverty.

Indeed, if President Ramaphosa loses the high stakes game of land poker, his legacy could be more Mugabe than Mandela.

September 2018 | VOLUME 18

OFFSHORE INVESTING SPECIAL

Is this the end of the golden age for the FAANG stocks? (page ii)

Finding opportunities in Asian markets (page iii)

Opportunity to enter UK investment grade property market (page vi) {I}

OFFSHORE IN VESTING SPECIAL

30 September 2018

IS THIS THE END OF THE GOLDEN AGE FOR THE FAANG STOCKS?

NICK CRAIL Fund Manager, Ashburton Investments

MoneyMarketing discusses the so-called FAANGs (Facebook, Apple, Amazon, Netflix and Google/Alphabet) stocks with Rob Forsyth, Head of Quality Research at Investec Asset Management.

Towards the end of July, the FAANG stocks wobbled a little as Facebook and Netflix disappointed on their results.

But then along came Apple at the beginning of August with results that beat expectations – so the pessimism around the FAANGs seems to have abated, with many pointing out that not all the FAANGs are the same. How true is this?

The business models differ substantially between the FAANGs: Facebook and Google have predominantly advertising-based business models; Amazon is a little bit of everything – from retail to web services and membership revenue streams; Netflix is a pure subscription model; and Apple sells devices along with software and services through their app store.

So, while their business models don’t justify them being grouped together, what they did have in common was that they were all stocks that were growing fast and broadly involved new technology platforms; they were also disruptors, i.e. Google and Facebook disrupted traditional advertising models, Amazon disrupted retail, Netflix disrupted traditional broadcast and linear TV, and Apple succeeded in making premium phones ubiquitous.

If you had to pick one of the FAANG stocks to buy and hold for the next ten years, which one would it be and why?

In analysing the FAANGs it is important to recognise that they have had a long roadway of growth with little encroaching competition.

Growth in mobile, for example, has been a massive tailwind for all these businesses as it has provided people with access to data on the move, allowing them to multitask and use these platforms more. Now, however, one must assume that this tailwind is nearing its end stages, as access to data is no longer a limitation, certainly in developed economies where the bulk of earnings is generated.

Secondly, time is becoming a constraint. How much more time can be spent engaging with these platforms if you consider that, for example, the average American sleeps for seven {II}

hours and already consumes on average eleven hours of media daily?

Finally, we expect increased competition between the FAANG stocks to start weighing on them in the coming decade. Google and Amazon, for example, will vie with one another for cloud revenue and increasingly in voice-activated search, while it’s not unlikely that competition will heat up between Google-owned YouTube and Facebook video. What happens if Netflix, until now a channel for professionally delivered content, starts to compete?

We believe we’re coming towards the end of the golden age for these businesses, with its ubiquity of data, more mobile access and little competition. Risks are increasing in these investments and we therefore do not hold any of these stocks in our Quality portfolios (which include the Investec Global Franchise and Investec Opportunity Funds). We will also not be buyers of any of them at this point in time.

Which do you think is the most vulnerable of the FAANG stocks – and why?

The most vulnerable FAANG stock in our view is probably Facebook, because the ethics of the business model have been called into question; unlike Google where you search and are then served with advertising, Facebook essentially eavesdrops on your conversation to sell you stuff.

In addition, it is a media company and throughout history all media companies end up being regulated in some form of other. They walk a very narrow tightrope between being viewed as independent versus countenancing certain types of media on their platform.

Finally, subscriber numbers are showing signs of a slowdown.

Rob Forsyth, Head of Quality Research, Investec Asset Management

FAANGS: WHERE ARE WE AT?

F

AANG is an acronym for some of the leading global (Western) tech stock names. The list includes Facebook, Amazon, Apple, Netflix and Google (now Alphabet). When considering these companies, the fundamental drivers of both user engagement (leading to revenue growth), and then ultimately earnings growth needs to be unpacked and is different for each company. We consider some of these companies: Apple recently beat earnings expectations. And while sales volumes of their latest iPhone have declined, the phones have become more expensive and margins have increased.

As an investor, it is worth considering whether this is sustainable. It might be, provided Apple technology and applications remain market leading, but should competitors such as Huawei and Xiaomi offer the same or better features at vastly reduced prices, the revenue earned from hardware is under threat. Of course, Apple earns significant revenue from applications listed and accessed through its app store.

The user purchases (a game, for example) through the app store and because the platform is provided by Apple, they get approximately 30% of the revenue. So, provided users continue using the app store to access more content, revenue will continue to grow.

Analysts don’t expect more than 8% p.a. revenue growth over the next three years for Apple, but they do expect margins to increase and for earnings per share to grow at 18% p.a. The company trades on a forward PE of 19 times and it could therefore be argued that Apple is fairly valued and will struggle to make substantial gains from current levels.

Looking at Amazon, most analysts talk about how expensive the share is by looking at its price relative to its earnings. The reality is that some of Amazon’s offerings are in their infancy and while they might contribute revenue, the company is using that revenue to expand footprint and invest in growth, so very little of it is hitting the earnings line.

At some point in the future, the company will stop growing into new regions/offerings, at which time revenue will drop down to the earnings line – and quickly. This began to happen in Amazon’s last quarter already. Revenue only grew at 4% quarter on quarter, but earnings grew 55%. With Amazon’s market leadership in cloud, the future remains bright for the company.

Even though Netflix is the second highest returning stock over the last year, it has very high debt and their content is expensive and not necessarily scalable – users typically watch a TV episode once or twice.

More costs incurred by Netflix are spread over viewers. It therefore needs to keep adding more viewers to spread the costs, therefore the company’s fundamentals are more questionable.

Currently, there are a few question marks on the sector, however, these companies continue to take share in ‘eyeball’ time and continue to innovate.

As such, provided the investor can take the volatility in these stocks and focus on the fundamentals, the outlook is good (for most of them).

OFFSHORE IN VESTING SPECIAL

30 September 2018

FINDING OPPORTUNITIES IN ASIAN MARKETS MoneyMarketing discusses Asian stocks with Craig Farley and Simon Finch, Fund Managers of the Ashburton Chindia Equity Fund.

It’s been an unsettled time for Asian markets with the Hang Seng down from its January peak and the Shanghai Composite index officially in bear market territory. What is causing this?

Conditions have become more difficult for investors in recent quarters, particularly within an Asia and emerging markets context. In the case of China, attention has migrated towards several key developments in the US, namely the Federal Reserve monetary policy dynamic and an escalation of trade tariff tensions propelled by President Trump. The consequence of an increase in US monetary tightening expectations (driven by US inflation, employment and wage data) and the markets view that China stands to lose out if Beijing continues a proportional retaliatory tariff response, has culminated in a period of renewed US dollar strength and sharp Chinese renminbi weakness. This has gone hand in hand with underperformance by Asia and emerging markets, reminding investors of the longstanding negative correlation (-0.70 since 2000) between the American currency and the performance of the MSCI Emerging Markets (EM) Index.

In a related context, concerns have arisen over the amount of offshore US dollar borrowing that has grown dramatically over the past decade. Emerging markets’ US dollar-denominated international debt securities outstanding have risen by 271% from $819bn at the end of 2008 to $3.04tn at the end of 1Q18. Within that total, China’s US dollar-denominated international debt securities surged 26 times from $30bn to $768bn over the same period, with non-financial corporate debt accounting for $388bn or 51% of the total (source: Bank of International Settlements). This has coincided with concerted Chinese government efforts to deleverage the economy, raising anxiety among investors over the ability of authorities to maintain its delicate balancing act of initiating a controlled economic slowdown without triggering a systemic crisis.

How worried should we be about the possibility of a long-term trade war between the US and China, or will congress check Trump’s protectionism?

Our view on President Trump’s trade agenda, directed principally but not

exclusively at China, has not changed since the outset. From a negotiation perspective, the fundamental issue is that the list of demands sought from both sides makes it difficult to envisage a swift resolution. Add to this the bargaining stance of Peter Navarro, a key figure in the US negotiating team, who is on record as saying the US is “going after China’s 2025 Development Goals’’, a non-negotiable Chinese Party slogan policy.

As events have unfolded, China appears hamstrung by physical limits in terms of the tit-for-tat retaliation strategy it has adopted. US imports from China totalled $525bn in the 12 months to June 2018, while China imported $163bn of goods from America. Beijing will be hoping for Trump to cede ground and declare a victory ahead of the mid-term elections, predicated on higher rising prices for American voters and the President’s typical negotiating style of extreme posturing followed by a softer resolution. Ultimately, the real risk lies in the unpredictability of the outcome.

We like the analogy of Italian politics: it never really goes away, and periodically spikes up as a source of market risk.

What about monetary tightening? (China has tightened monetary policy and Japan seems to be moving away from money printing).

How worried should investors be – or can they expect that companies in Asia will still make good profits?

What we have seen in recent weeks is acknowledgment from Beijing that the two year-long deleveraging campaign – and related clampdown on the shadow banking sector – has begun to impact the economy in a more meaningful manner, leading to an easing (not a continued tightening) of policy. First, the central bank stated that most financial institutions can continue to issue Wealth Management Products (WMPs) under the old format before the end of 2020.

This should allow credit to continue to flow to infrastructure projects and SMEs, and follows the recent collapse in infrastructure investment, which is down to 3.3% Year on Year (YoY) growth in 1H18 from 16.8% YoY in 1H17.

Beijing is also seeking to initiate its biggest ever tax cut in personal income tax, which is likely to take effect from 1 October. This should significantly boost the disposable income of middle-class households.

From a corporate earnings perspective, the slowing Asian revisions profile witnessed at the start of the year has not reversed, with revisions turning flat over the past three months and now negative. While topline revisions remain positive, margins are being cut in aggregate.

Given the escalating trade war risk between the US and China, revisions are likely to face downside risk for 2H18. In that context, profitability will vary significantly between countries and sectors. Investors will need to be very selective.

Has the softer market performance in China created buying opportunities?

At the time of writing, the MSCI China Net TR Index is now -20% from the peak registered in late January, bringing valuations at 10.4x forward P/E back to just under historical averages. In that context, value is beginning to emerge. Also, although earnings momentum has slowed for China this year, it remains superior to much of Asia, with several cyclical sectors witnessing upgrades.

With that said, Ashburton does not rely on any economic data or apply forecasting in our decisionmaking framework to allocate capital and manage risk in China. Instead, we fall back on the high level of rigour and discipline that underpins our quantitative decision-making framework. Our allocation model for China turned ‘bearish’ on 21 July.

Given recent developments in the EM space, notably in Turkey, downside pressure on share prices is the path of least resistance. It is clear that tail-risks are rising, and China will not be immune from short-term pressures. With that said, recent events are setting up an attractive long-term entry point to access one of the world’s most compelling investment stories.

Are Indian equity prices a little expensive?

With India’s equity markets at all-time highs, and its forward P/E ratio above the historical average, one could conclude that India’s equity prices are on the expensive side. It has been often argued that India deserves to trade at a premium, particularly to other emerging markets. There are a number of factors, including its comparatively strong corporate governance across multiple sectors, the reform agenda being supported by Prime Minister Modi, and of course the growth opportunity of India, the globe’s fastest growing major economy. With growth recovering and earnings showing signs of strength, India’s slight equity

premium, we believe, is warranted. It should be noted that the all-time highs are largely driven by a limited number of index heavyweights. As evidence of recovery and re-ratings unfolds, we should witness a broadening of the upward moves across sectors.

Thus, at present, we believe there are opportunities to invest in actively managed funds that have multicap exposure and can benefit from increased market breadth.

Can investors still find value in Japanese stocks?

‘Deep value’ and ‘this time it’s different’ are two terms those with any experience of investing in Japan will have heard time and time again.

Despite an upturn in fortunes for the market since current Prime Minister Abe came to power in 2012, releasing his Abenomics arrows, Japan has still underperformed the S&P500 in US dollar terms by more than 40%. Go back further to the Lehman crisis in 2008 and Japan has underperformed the S&P500 by more than 110%.

Although growth languishes in Japan, and the demographics look like being a burden for decades to come, the country remains a leading contributor to the global economy, and ranks second (8.4%) on the MSCI World Index weight behind the US (60%) and ahead of the UK (5.8%), although the EU (xUK) represents 14.6%. Opportunity and value exist in both the domestic as well as export market in Japan. Investors can consider Masayoshi Son, the Chairman of the Softbank Group, which has launched a ‘Vision Fund’ that will seek to invest up to $100bn in technology-based ventures globally.

Having closed the first $100bn investment round in 2017, Mr Son is already looking at a second version.

This demonstrates Japan’s continued relevance in global investing and why investors should and can find value investing in Japan.

Craig Farley, Fund Manager, Ashburton Chindia Equity Fund

Simon Finch, Fund Manager, Ashburton Chindia Equity Fund

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OFFSHORE IN VESTING SPECIAL

CLYDE ROSSOUW Portfolio Manager, Investec Asset Management

NOT TIME TO TAKE SIDES IN MARKET CROSSFIRE

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arkets are caught in a crossfire, and it is Investors need to understand what these are if not the time to take a side. The investment they want to come out of 2018 and beyond with their environment calls for identifying best-incapital and portfolios intact. class businesses rather than proactively positioning An issue like tariffs and possible trade wars has global equity portfolios for one specific market been developing for the last six to nine months, and outcome. Now, more than ever, it is important to if you believe there is growing momentum around ensure that any investment in a business is purely countries policing cross-border trade movements, based on strong fundamentals, and not an attempt to it will definitely produce winners and losers on the lock in potential benefits of specific macro regimes investment front. that appear to be firing across markets.

At the same time, it has been well documented Understanding and making some sense of what that governments around the world are experiencing is driving global financial markets, and the resultant populist pressure against globalisation, because of behaviour of different asset classes, growing global inequalities. The policies is becoming a difficult task. that are put in place by governments to The most significant change resolve the inequalities will either cause DECLINING and driving force in financial further distortions or impact the way COMMODITY markets year-to-date has been that capital is allocated, in the form of PRICES ARE YET the withdrawal of liquidity. Major higher deficits and/or less private sector central banks have been shrinking ANOTHER STRAY investment. their assets, and the weaker asset These impacts should be seen against BULLET FLYING classes have suffered, the most the existing trend of liquidity leaving the notable being emerging markets.

THROUGH THE AIR financial system. It then becomes clearer However, hanging one’s hat on that the economic cycle is starting to tightening liquidity as the ultimate determinant of show some signs of a downturn. one’s opportunities and returns is not enough. There Declining commodity prices are yet another stray are also numerous crossfires impacting the way bullet flying through the air. Commodity prices have individual stocks and sectors are behaving. had a setback and with liquidity tightening there

TECH DISRUPTION AND YOUR INVESTMENTS

W

hen determining the spread of your investments, it is critical to understand how technological disruption and development affects your stock selection.

“While the concept of technological disruption is now not a novel one, what is new is the accelerated pace of development and the speed at which these products or services are able to gain market share,” says Neil Padoa, Head of Global Research at Coronation.

As the graph indicates, technologies introduced in the early 1900s, such as electricity, took up to 50 years to achieve full market penetration.

Technological developments of the last thirty years, however, amass market share far more rapidly, primarily as a result of the penetration of mobile phones and almost ubiquitous internet access.

When evaluating investment potential, Coronation determines how a company will be impacted by technology, and, more specifically, whether it will benefit from technological disruption or whether it will be disadvantaged by such change.

Al and machine learning Alphabet owns platforms such as Google Search, Google Maps, YouTube, Android, Gmail, Google Chrome and Google Play. A nascent technology {IV}

30 September 2018

Source: Kleiner Perkins Caufield & Byers

advancement within its suite worth keeping an eye on is Alphabet’s capability in Artificial Intelligence (AI) and Machine Learning (ML), explains Padoa.

“We think Google is a leader in these fields and has already made significant progress applying these technologies to Waymo, their autonomous driving unit.”

According to Padoa, Alphabet’s current growth rates are multiple times higher than the market and GDP (3% to 5%), with projected revenue growth of 22% in 2018 and 19% in 2019, while its net cash balance sheet is robust when compared to the market, which as a whole is indebted.

When considering investment spending and under-monetised assets, Alphabet’s earnings are below normal, while its global platform and scale create tremendous optionality, says Padoa.

Music streaming Vivendi-owned Universal Music Group (UMG) is the world’s largest record label group, owning 30% of global recorded music today including valuable catalogues. According to Padoa, the music industry

has been a lot of money going into yield-bearing strategies. Investment grade credit, for example, has attracted significant institutional pension fund dollars, costs are rising, and capital is no longer as freely available – which is a very clear sign of financial markets tightening.

However, the outlook is not all negative. Consider the positive disinflation disruptions coming from technology, which is not showing any signs of abating. The wealth accruing to large-cap technology businesses is significant. We have seen some very strong earnings numbers from businesses like Google this year, as it garners more and more at the margin from advertising dollars.

One must be very aware of how businesses like Google and other technology businesses will impact traditional business models, because when you aggregate their effect across the board, they are a very strong disinflationary force that is acting in the opposite direction to tariffs and populist policies, which are inflationary.

While there are still enough investment opportunities, we are at that stage of the cycle where the risks are rising, so investors must be extremely selective and identify best-in-class businesses, because the aggregate conditions are not conducive to investing across the board.

is in the early stages of recovery following almost two decades of decline and Coronation expects UMG to benefit as growth accelerates driven by streaming, led by the likes of Spotify and Apple Music.

“Platforms such as Spotify license music from record labels but increasingly control music distribution and influence user demand in a cluttered music landscape,” says Padoa. Coronation therefore expects Spotify, as the leading streaming platform, to become more powerful and to produce their own content around the fringes.

Music is ubiquitous, and streaming is a great product that is in the very early stages of penetration and monetisation in our view. “We therefore expect both Vivendi and Spotify to benefit going forward,” Padoa adds.

Coronation offers exposure to the above assets through its flagship offshore balanced fund, Coronation Global Managed.

Padoa concludes that investment decisions should be informed by the fact that global markets – while currently enjoying an extended period of economic expansion – are at the tail-end of their growth trajectory.

“When it comes to asset allocation and the positioning of Coronation’s funds, we consider both the fundamentals of the respective businesses we invest in, and the various global risk factors currently in play.”

He says that while we are still in the secondlongest bull market since World War II, Coronation’s view is that the probability Neil Padoa, of a bear market and Head of Global a market selloff is Research, increasing.

Coronation

Putting your money to work since Day 1.

NET#WORK BBDO 814110/E

From the day Coronation opened its doors, with so much change in the air, our purpose has never wavered. For 25 years, through the highs and the lows, we work every day to earn your trust and make your money work for you.

To invest your money today, speak to your Financial Adviser or visit coronation.com.

Coronation is an authorised financial services provider and approved manager of collective investment schemes. Trust is Earned™.

OFFSHORE IN VESTING SPECIAL

CRAIG EWIN

30 September 2018

OPPORTUNITY TO ENTER UK INVESTMENT GRADE PROPERTY MARKET

F

irst World Hybrid Real Estate Plc (FWHRE) is a pound sterling denominated regulated fund that invests in a combination of direct real estate in the UK and listed REITs. It offers investors the best of both worlds by providing better liquidity and pricing certainty than direct property investments, yet less volatility than publicly quoted and traded REITs. Direct real estate The Fund currently comprises 18 properties and is primarily invested in distribution and retail warehousing, as well as regional single-tenanted offices, resulting in a diversified portfolio. All the properties are well-situated in principal industrial and logistic locations, including the Midlands distribution area known as the ‘Golden Triangle’.

The following are key features of the Fund’s real estate portfolio:

Source: Bloomberg and Marriott

1

A strong weighting to logistics and distribution warehousing – strongly influenced by changing consumer shopping habits and the growing online shopping trends, this is a sector that continues to experience strong occupier and investor demand.

2

A long lease profile – a weighted average unexpired lease term (WAULT) of 11 years, with no leases being subject to expiry within the next five years, meaning that the rental income from the portfolio is highly predictable and reliable.

3

All leases are fully repairing and insuring (FRI) – which means that the tenants pay all the operating expenses in addition to the rental, and rentals reviews during the lease term are upwards only, meaning that the rental cannot be reviewed to a level lower than that determined at the previous review. This, together with the long lease profile, enhances the income predictability.

4

Financially sound tenants – a property will not be acquired into the portfolio unless the tenant has a 4A1 or 5A1 Dunn & Bradstreet business rating (5A1 being the top rating). This underpins the income certainty.

Source: Bloomberg and Marriott

REIT Portfolio The REIT holdings comprise substantial funds with diversified portfolios and an emphasis on warehousing property. These REITs are readily tradeable on exchanges and provide FWHRE with liquidity.

Liquidity Although the REITs generate a lower income yield than the direct property portfolio, they are a structural and permanent feature of the Fund, as they can be readily sold as and when required and provide liquidity for investor redemptions. Liquidity (inclusive of cash balances) is targeted at 20% of shareholder funds, which is considered prudent and appropriate.

Low volatility, predictable income A further feature of FWHRE is the low price volatility when compared to publicly quoted and traded property. FWHRE is priced on a net asset value basis and trades weekly. In terms of FWHRE’s valuation policy, each property is independently

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valued on the anniversary of its acquisition, and with the properties having varying acquisition dates, this allows for a rolling appraisal and low price volatility.

The graph above shows the comparative performance of a £1m investment in FWHRE and the UK NAREIT index (with income reinvested).

FWHRE has produced property-related returns but with much lower volatility.

FWHRE is well positioned to provide investors with robust and predictable property income, distributed quarterly as a dividend. The occupational market, especially for distribution warehousing property, is supportive of current property yields and rental growth, which is a fundamental driver of valuations over time.

The Fund is domiciled in the Isle of Man (IOM), and is subject to the IOM Financial Services Authority governance and the IOM Collective Investment Schemes Regulations. It is also approved by the Financial Sector Conduct Authority in South Africa.

OFFSHORE IN VESTING SPECIAL

30 September 2018

HOW TO SAVE 3% ON YOUR NEXT OVERSEAS FOREX TRANSFER

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xchange4free is a South African owned global foreign exchange, money transfer and payments company servicing over 50 000 private and corporate clients in over 40 countries worldwide.

Exchange4free – an authorised foreign exchange broker (or intermediary) approved by the South African Reserve Bank (SARB) – services the needs of private clients investing offshore, emigrating, buying property abroad or sending regular money transfers overseas.

The company was started in London in 2004 and has since traded more than $10bn globally via offices in the UK, South Africa, Australia, Switzerland, Canada and Israel.

Private clients: annual foreign exchange limits explained South African residents (including South Africans living overseas who have not yet formally emigrated) may utilise the following allowances per calendar year to move money out of the country:

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• R10m foreign investment: SARS tax clearance required (we assist with obtaining SARS tax clearances for free within two to five days) • R1m discretionary allowance: No SARS tax clearance required In addition to the above allowances, private clients can also make use of the following to move money out of South Africa: • Formal emigration: South Africans living overseas – particularly those with funds tied up in retirement annuities, pensionrelated investments or some form of blocked funds – have the option to formally emigrate from South Africa. This involves going through a formal emigration process with the SARB and the SARS that changes your status from being treated for exchange control purposes only as a ‘non-resident’, to a ‘resident’. This gives South Africans living overseas the freedom to move funds out of the country and access relevant retirement funds without the normal limits and restrictions.

• Non-resident funds: Money that has been transferred into South Africa from overseas is freely transferrable back out of the country as long as clients can prove that these funds came into the country from overseas (reasonable ‘source’ of funds).

A better foreign exchange service Private individuals in South Africa have traditionally been poorly serviced and pay high foreign exchange premiums and costs to move money out of the country.

The industry has typically been characterised by slow, unresponsive and unprofessional service, low levels of product and exchange control knowledge, and very high costs (when considering hidden forex margins and international transfer fees).

Exchange4free has delivered an international standard forex service for South Africans by developing a simple, transparent, highly competitive and user-friendly solution without you ever having

to leave the comfort of your home or office.

This unique, innovative and highly competitive ‘one-stop shop’ solution for South African private clients includes the following: • Bank-beating forex rates • No Swift fees or hidden costs • Free SARS tax clearances in two to five days • Apply online at https:// exchange4free.co.za/onlineforms.html Exchange4free also works and partners with leading financial advisers, investment managers, offshore fund platforms, estate agents and emigration firms to offer a value-added service and better deal to their customers.

Please visit www.exchange4free. co.za for more information or call Matt Lawson on 011 453 7818 for any assistance.

Exchange4free is an approved Foreign Exchange Intermediary by SARB and is an authorised Financial Services Provider (FSP 47434).

OFFSHORE IN VESTING SPECIAL

US COMPANIES CONTINUE TO GROW

NICK JEFFREY Relationship Manager, Sanlam Private Wealth

GOING GLOBAL: DON’T GET CAUGHT IN COMPLEXITY

I

n tumultuous times, investing offshore is one way of ensuring a diversified investment portfolio to hedge against risk. For South Africans, it can be fraught with potential complications, however – not least of which are currency volatility and tax hurdles. Here’s what you and your clients need to know.

South Africans invest offshore for a number of reasons – to protect their wealth from domestic political or economic risk, to gain access to specific markets and opportunities unavailable locally, or to diversify across multiple geographic locations and currencies.

Without expert advice, however, it’s easy to get tripped up by complexities such as estate duty or inheritance tax, local restrictions on investing offshore and currency fluctuations. Factors to consider include: South African estate tax: In SA, this tax is paid by the estate of the deceased in the form of estate duty. The beneficiary inheriting the funds generally has no liability to pay the tax, as the estate has already paid it. The estate duty rate is 20% on the dutiable amount of estates up to R30m, and 25% for anything above R30m.

Foreign inheritance tax (IHT): Most countries have their own inheritance and estate duties or taxes, and a South African resident owning a foreign asset may be subject to these.

Depending on whether an estate duty double taxation agreement is in force with SA, the rates levied in the foreign jurisdiction may be in addition to the SA estate duty. Where such an agreement is in force, the higher rate of the foreign jurisdiction will typically apply.

Probate: This is the process in which a will is ‘proved’ in a court as a valid public document and accepted as the true last testament of the deceased. Probate will generally be required in the jurisdiction in which an asset is held.

30 September 2018

If the country in question doesn’t recognise a South African will or executor, this can be a timeconsuming and costly affair. An offshore will is therefore sometimes required to simplify the process.

Foreign investment allowance: South Africans can externalise local funds by using their annual foreign investment allowances to invest offshore or obtain foreign exposure through using an asset swap facility.

Other ways of funding offshore investments are via authorised foreign assets such as foreign-earned income or foreign inheritances, which if earned or received after 1997/8 may be retained offshore.

SA donations tax: This is levied at a flat rate of 20% on the value of the property donated. However, donations exceeding R30m are taxed at a rate of 25%. Section 56(1) of the Income Tax Act contains a list of exempt donations, including those between spouses, and donations to approved public benefit organisations.

An annual exemption applies on the first R100 000 of property donated.

The four most common ways of investing offshore are: • Investing directly in a portfolio of equities • Investing in a foreign collective investment scheme for offshore funds • Investing through an insurance wrapper • Lending money to an offshore trust to make investments.

Since each situation is unique and there are many variables to be taken into account, it’s always advisable to obtain expert advice before implementing an offshore strategy.

At Sanlam Private Wealth, we can facilitate the seamless integration of your clients’ local and offshore estate planning – if you need further information, please contact us at fiduciary@ privatewealth.sanlam.co.za.

MoneyMarketing spoke to Izak Odendaal, Investment Strategist at Old Mutual Multi-Managers, and Peter Little, Fund Manager at Anchor Capital, about the solid second quarter earnings of US listed companies.

“

Of the 450 S&P500 companies that have reported second quarter earnings, a record number (79%) have beaten consensus estimates,” says Odendaal. “This could normally mean that analysts were overly pessimistic, but it has really been an impressive reporting season. At a sector level, Energy has predictably shown the best earnings growth (more than 100%) due to the recovery in the oil price, but all nine S&P500 sectors reported positive earnings growth, and earnings growth excluding energy is 20%.”

Little agrees that earnings have been stellar – and Facebook was no exception, although it shaved off over $120bn from its market cap following the release of its Q2 results. “Even Facebook delivered great earnings (30% up year-on-year, 5% ahead of expectations). Facebook’s dramatic share price reaction was more a function of their guidance on future earnings, where they expect operating margins to drift towards 30% from their current levels in the mid-40s.”

Most corporates have seen their earnings boosted by a slightly softer dollar and lower tax rates. Last year in December, US President Donald Trump signed the Tax Cuts and Jobs Act, which cut the corporate tax rate from 35% to 21%.

“Tax cuts are almost certainly responsible for the biggest proportion of earnings growth for the first two quarters of 2018 and will continue to be for Q3 & Q4 at which point they’d be in the base – from next year the impact of tax cuts on earnings growth will disappear,” adds Little.

Odendaal agrees that the tax cuts certainly provide a one-off boost to profits that will roll out of the numbers by year-end. “Therefore consensus earnings growth (according to Thomson Reuters IBES) declines from the current 23% year-on-year to around 7% to 9% next year. However, revenue growth, which is unaffected by tax cuts, has improved to 9% year-on-year at an index level. This was also broad-based across sectors: excluding Energy, revenue growth is 8%. Around 72% of reporting companies have beaten revenue estimates.”

Some investors are concerned that they’ve seen ‘peak earnings’ and that the market will go down from here due to the US’s trade war with China.

“Peak earnings aren’t necessarily a negative for markets going forward, provided lower earnings are factored into expectations and valuations,” says Little.

“Expectations for earnings for Q1 & Q2 2019 are already reflecting the loss of the tax impact and expectations are for around 8% earnings growth year-on-year in both quarters. Provided these lowered growth expectations are met next year, there’s no reason why markets can’t continue to deliver returns in line with earnings growth.”

Little adds that for now, the trade war seems like a tool that Trump is using to negotiate better access to Chinese markets for US corporates and better respect for US intellectual property.

“To the extent that negotiations drag on, it could weigh on confidence and global trade – which would drag economic growth and likely filter through to corporate earnings. But for now it seems likely to only influence a limited number of companies directly affected by the list of goods subject to tariffs.”

Odendaal says it’s still unknown whether the trade tensions will escalate into a full-blown trade war and the looming mid-term elections in the US adds a further element of unpredictability.

“A trade war is in no-one’s interest, and certainly there is a strong free-trade lobby within Trump’s Republican Party. At this stage, the impact still appears minimal, partly because large multinationals can shift production around. But further escalation would be negative for earnings.”

The US dollar is becoming more of an issue, with investors worrying how badly dollar strength could hit Izak earnings of companies with large overseas operations – Odendaal, Investment like Coca-Cola.

Strategist, “The US dollar at its current levels is roughly 4% Old Mutual stronger than its average during the second half of 2017, Multiso provided it settles around these levels, it will switch Managers from a 4% tailwind in H1 2018 to a 4% headwind in H2 2018,” says Little.

“The impact on S&P earnings is difficult to predict, since different companies have exposure to different Peter currencies and some companies hedge currency Little, Fund Manager, exposure, but on balance it could be a drag on H2 Anchor earnings,” he adds.

Capital

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30 September 2018

OFFSHORE IN VESTING SPECIAL

OFFSHORE INVESTING: NOT A POPULARITY CONTEST

“

diversification when it comes to a portfolio.

“Investing involves taking decisions about the future under inherent uncertainty and therefore even the best investors make plenty of mistakes.

That is why investors should always diversify their holdings to spread the risk,” he notes.

This is particularly relevant for South African investors as the local stock market makes up less than 1% of the value of world markets.

“Investing offshore gives you access to sectors and companies that are simply not available on the local market. South African investors need to explore beyond their borders to access a broader range of attractive opportunities and benefit from the trends that are shaping markets globally,” he says.

So how much is enough offshore exposure?

“It is impossible to state a single number that is appropriate for everyone as the answer depends on, among other things, your risk profile, objectives and investment time horizon. For example, research on average South African household’s spending habits on imported goods/ services suggests that investors should look to

hold at least 30% to 40% of their total investment portfolio offshore to protect against an erosion in local purchasing power.”

In summary, Brocklebank offers three tips for successful offshore investing: • Make sure your portfolio is well diversified • Adopt a regular approach to investing offshore, rather than making one-off investment decisions or trying to time the rand • If you partner with an offshore manager, check that they have an investment philosophy that you believe is sustainable and that they have proven they can implement.

“A good, independent financial adviser can assist you with this process,” he says.

Dan Brocklebank, Head, Orbis Investments UK

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There is no such thing as a popular investment opportunity. If it’s popular, then that popularity will already be reflected in the price you have to pay. And if it’s a very good investment opportunity, then it’s unlikely to be very popular.”

That’s the word from Dan Brocklebank, head of Orbis Investments UK, Allan Gray’s offshore investment partner. Speaking as part of a panel at the recent Allan Gray Investment Summit, Brocklebank explained that Orbis believes it is critical to invest differently.

“Investing differently can feel uncomfortable and counterintuitive, but one has to look beyond the short-term noise, dig deep to find hidden value and be patient,” he says.

Brocklebank further explains that contrarian doesn’t just involve buying shares that have been beaten down a lot; a contrarian view is that the growth rate is going to be far higher than the market ascribes to the company.

“Investing for Orbis is not about putting stocks into boxes; it’s about looking for differences between price and intrinsic value.”

Brocklebank also emphasises the importance of

Why limit yourself to only 1%?

Discover the full picture by investing offshore with Allan Gray and Orbis.

Most investors tend to focus their attention on seeking opportunity locally, but with South Africa representing only around 1% of the global equity market, we understand the importance of seeing the full picture and unlocking investment opportunities beyond the local market.

That’s why Orbis, our global asset management partner, has been investing further afield since 1989. Together we bring you considerably more choice through the Orbis Global Equity Fund and Orbis SICAV Global Balanced Fund.

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

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

{XI}

OFFSHORE IN VESTING SPECIAL

LIANG DU Executive Director & CEO, Prescient Investment Management, China

30 September 2018

CHINA AND THE TRUMP TRADE WAR

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Sculpture by Beth Diane Armstrong

ince January’s stock market highs, the Chinese market and the S&P have fallen. However, while the US market is only slightly lower than its peak, the Chinese stock market is at two-year lows and over 25% down from its January highs.

Could President Donald Trump be correct in saying that “trade wars are easy to win”?

To understand the trade war, it’s useful to have some perspective. Over the past 20 years, China has developed from a country with a GDP of less than 11% of that of the US, to one whose GDP is now over 60% of the GDP of the US. China achieved this by implementing two major reforms. First, it abandoned the communist economic system and adapted a capitalistic approach that allowed investors to employ Chinese workers for profit. By putting 500 million people to work, China became the factory of the world, reducing the cost of everything.

For developed markets this meant cheaper goods.

For China, the transition saw worker-generated taxes and savings build a modern economy to drive the greatest reduction in poverty in modern history.

The resultant explosion in trade created a trade deficit for consuming countries like the US, and a trade surplus for China. factions in the US who see it as a rival. In their view The second major reform that boosted China came of the world, China is going to surpass the US if after the financial crisis when it entered a new era of left unchecked. unlocking the power of the Chinese consumer. The However, because both countries can stomach government began a programme benefitting its people a trade war relatively easily, it is likely to play out and, since around 2010, consumer spending has very slowly. Out of the 230 or so countries with dominated the second and ongoing growth phase. trade data, China and the US rank number 214 and The trade war moves away from the win-win 223 respectively when measuring total trade as a dynamic established over the past two decades. Even percentage of GDP. They are huge countries with large if the US taxes everything from China, for many internal populations that drive the economy. categories of products it will remain the cheapest Question is, if the trade war is not such a big deal, supplier. And given its high labour cost, the US will what is affecting the Chinese stock market? simply import from somewhere else.

The clampdown on shadow banking in China is That the US economy is close to full employment a larger issue. While the trade war contributes to is also contradictory. If it was showing high negative sentiment, the Chinese financial system is unemployment there might be merit in a trade war undergoing much-needed reform, with regulatory motivated by the need to put Americans to work. As change likely to contribute to the long-term wellbeing things stand, the only effect of the trade war is likely to of Chinese financial markets. be higher inflation.

We believe the correction in the stock market So why is Trump fighting this trade war? represents a fantastic opportunity. Valuations are close China’s development is aMktg massive worry for certain to historic lows Prescient Money 1-4 Goose Ad_r3.pdf 7/19/17 10:27:12 AM in a market weakened by continuous

bad news. However, fundamentals are relatively strong, meaning there is a mismatch between these and the market.

China remains one of the few places in the world where the market has the potential for some very meaningful upside. For investors who have not looked at the Chinese market before, this could be a great opportunity to enter a growth market at an attractive price.

Prescient Investment Management Ltd is an authorised financial services provider (FSP 612). Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CISs are traded at the ruling price and can engage in scrip lending and borrowing. Performance has been calculated using net NAV to NAV numbers with income reinvested. There is no guarantee in respect of capital or returns in a portfolio. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.prescient.co.za

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{XII}

OFFSHORE IN VESTING SPECIAL

30 September 2018

PETER ARMITAGE CEO, Anchor Capital

THE GROWING GIANTS OF THE GLOBAL ECONOMY

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here is a very good reason why seven of the top-ten biggest companies in the world are tech companies (Amazon, Apple, Microsoft, Google, Alibaba, Tencent and Facebook). And the reality is that they must form part of a global investment portfolio if investors want market-competitive returns over a reasonable investment horizon.

The recent results from these companies confirm growth rates that are multiples of traditional bluechip companies but also, more significantly, massive cash flows. Most surprised positively, relative to

expectations (Amazon, Google and Apple), while Netflix and Facebook disappointed – although the latter was company specific as it gears up to spend more on data privacy. Their profits and share prices will never move in straight lines but, we believe, the growth trends will persist.

The amount of money consumers can spend is finite, but these companies are capturing an increasing share of our wallet. Hence, as their market share rises, so the market shares of traditional players decrease, and the value continues to shift. But these tech companies can reach much bigger audiences than their predecessors, with much less new investment. Amazon does not need more stores, Netflix does not need additional cable installations and Tencent does not need to sell more gaming consoles.

As current trends persist, these businesses are becoming near-global monopolies, and this is why they can generate such big margins and profits.

This is easily understood if one thinks about the advertising and entertainment markets. Online advertising now comprises more than 50% of media spend in the US where, before Facebook and Google, ten major newspapers dominated print ad spend.

Each of these newspapers had a big slice of the pie and had massive variable costs in delivering their medium, thus restricting their operating margins.

The business model of Facebook and Google is the complete opposite – each one is a critical mass platform, they can each reach a global, rather than local audience and their incremental cost is low for

new users as their service is digital.

As an example, if each of the abovementioned ten newspapers earned $10 in revenue ($100 collectively), this would translate to around $1 in profit each (or a collective profit of $10). This shared $100 in revenue, if it had been earned by Facebook and Google, would account for around $40 of profit due to lower costs associated with these tech companies – that is four times as much! This is part of the secret to their value – as revenue shifts to tech companies, so the corporate intermediary makes more profit. And they are also building barriers to entry that are the ultimate moat. Facebook has four platforms with over one billion users each (Facebook 2.2bn, WhatsApp 1.5bn, Messenger 1.3bn and Instagram 1bn). No other company on earth can offer an audience of 2.5bn people (we note that some users utilise more than one of the various platforms).

So, share prices of these companies have already performed extremely well, the economic value of each company is certain to continue increasing steadily, and the cash flows are absurd: Tencent generates over $17bn a year and Google over $25bn a year in cash. They will continue to invest and build and invent and this will further enhance their future value. We are getting to the stage where the old traditional companies (and even new tech companies) cannot compete with the big guys.

Custodians of people’s wealth should ensure they are invested in funds that have exposure to these growing giants of the global economy.

{XIII}

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The portfolio is a sub-fund in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and is approved under the Collective Investment Schemes Control Act. The manager does not guarantee the capital or return of the portfolio. Past performance is not an indicator of future outcomes. Investec Asset Management is an authorised financial services provider.

IAM_MONMAR_E_180518

30 September 2018

MIKE TITLEY Business Development, Laurium Capital

Hedge funds access a bigger toolbox Hedge funds have an advantage over long-only funds in that they seek to generate positive performance from falling markets and more specifically falling stocks. This investment strategy is referred to as short selling. Put simply, short selling, in the context of the equity market, is the practice where investors borrow securities and then sell the securities without ever owning them. Investors sell them in the hope that the price of those securities will decline, and they will then profit by buying back those securities at a lower price.

The median net performance of the longshort equity hedge fund universe has been 5% per annum for the three years to June 2018, net of fees. Year to date (31 July), the Laurium Capital Long Short Hedge Fund has returned 7.7% net of fees versus the FTSE/JSE Capped SWIX All Share Equity Index of -4.4%. Since its inception 10 years ago, the Fund has generated 11.6% per annum versus the total return of the FTSE/JSE All Share Equity Index of 10.8%.

The stigma around short selling Over time, the practise of short selling has attracted negative publicity.

The scenario of benefitting from the falling price of an entity, where other investors are losing capital, has led to emotional debate.

When one focuses on the investment side of this debate, we believe there is a place for short selling.

The positives of short selling Shorting adds value to hedge fund portfolios in several ways:

11

HAMILTON VAN BREDA Head of Retail Sales, Prudential Investment Managers

Short selling: The misunderstood source of alpha The search for alpha in a drifting market Returns within the South African market have been subdued across most asset classes over the past three years to end July 2018.

The South African Capped SWIX equity index, including dividends, yielded 4.1% per annum, while cash returned 7.3% per annum.

Even listed property, which has generated impressive double-digit returns over time, lost its shine in the past few quarters, resulting in an annualised return of -0.9% per annum over the last three years. So where does one look for the alpha that investors need to generate the real returns required to live above the rising inflation breadline (three-year CPI of 4.9% per annum)? One obvious step is to select active asset managers that are supposed to sweat the asset classes harder and try to extract the opportunities that lie within them. One may take this a step further by allocating a portion of assets to a hedge fund.

INVESTING

• It allows a fund to reduce net equity exposure without selling the corresponding long positions • It generates liquidity in the marketplace by creating more activity and interest in a stock • Selling short may be seen as an active form of shareholder activism, versus avoiding a company, which is often overlooked • It is one of the few ways to extract returns for investors in a bear market.

When one removes the emotive element, shorting may be viewed as another method of realising mispricing opportunities in the market. Just as a ‘long-only’ manager seeks to buy shares at below intrinsic value and sell them above intrinsic value, the short seller seeks to sell shares that he has borrowed above intrinsic value and buy them back (and repay the borrower) at or below intrinsic value. When a share is shorted there is no capital outlay in the way there is for a long position. The short seller ‘borrows’ the scrip and pays the lender interest for it. The share is then sold in the market realising cash for the seller, which could be used by the hedge fund to purchase another security, or cover (buy back) an equity short position. Hence, short selling provides investors with the ability to generate performance without having to outlay the full capital up front. In this way, shorting allows the portfolio to leverage or gear by using the proceeds of the short sale.

Where one investor buys a stock and gains, the seller experiences the opportunity cost of having not continued to hold the stock.

Short selling is the inverse of this, where the seller gains, the buyer loses. It is not short sellers pushing the stock price down, but rather market forces based on the economic fundamentals of the asset that drive it to fair value.

Laurium Capital (Pty) Limited, is an authorised financial services provider (FSP 34142).Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. There is no guarantee in respect of capital or returns in a portfolio. The Manager retains full legal responsibility for any portfolio hosted on its CIS platform. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.lauriumcapital.com

Balanced funds offer promising returns

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espite the broadly disappointing returns from South African assets in recent times, particularly equities, at Prudential we believe many assets are currently valued to deliver promising inflation-beating returns over the medium term. Therefore, investors have good reason not to switch to cash, but instead to have faith in diversified portfolios like balanced funds.

Higher-risk local assets – equities and listed property – have underperformed their longer-run averages over the past three years to 30 June 2018, falling short of local bonds and cash. SA equities have returned only 5.3% p.a., just matching inflation, and SA listed property 0.9% p.a. This compares to 7.8% p.a. from SA bonds and 7.3% from SA cash. This muted performance has pushed returns from multi-asset funds below their expected longer-term average.

But going forward, we believe these funds should perform better over time, based on current asset class valuations and our fund positioning. The Prudential Balanced Fund is overweight global equities generally, which have the potential to deliver estimated returns of 12.6% p.a. over the medium term. Despite the long global equity rally, certain regions and sectors remain attractively priced, such as Germany, Japan, South Korea, China and Indonesia, while we are underweight relatively expensive US equities. We also believe global investment-grade corporate bonds offer good yields compared to their risk but developed market sovereign bond yields remain too low.

The fund is also overweight South African equities, where valuations are relatively attractive, being priced to produce a return of around 12.9% p.a. over the medium term. The fund holds companies with substantial exposure to strong global growth, including resources companies like Anglo American, BHP Billiton, Sappi and Exxaro, as well as Naspers and British American Tobacco. We also like financial shares including Old Mutual, First Rand, Standard Bank and Barclays Group Africa, which have offered low valuations with relatively high dividend yields. Additionally, the fund is broadly underweight retail stocks, given the financial stresses faced by SA consumers.

Besides equities, the Prudential Balanced Fund has a moderately overweight holding in SA government bonds, where current valuations indicate a return of around 9.7% over time.

We prefer longer-dated bonds for the higher yields on offer.

However, we are neutral in listed property and inflation-linked bonds. Even though listed property has fallen sharply in value so far this year, this is due largely to the decline in the share prices of the Resilient group of four property companies. Excluding these companies, the asset class is priced somewhat expensively – modestly above its fair value range – and the sector faces risks from higher inflation, rising interest rates and low growth. Yet valuations for listed property suggest a return of 14.4% p.a. in the next three to five years.

Finally, prospective SA cash returns compare unfavourably over time, the lowest of the local asset classes at 7.3% p.a. So, for medium- to longer-term investors, switching to cash now is not likely to give you better returns. Some patience is required: we believe that the current portfolio positioning of the Prudential Balanced Fund will allow it to continue to significantly outperform its benchmark and offer investors returns that strongly beat inflation over the medium term.

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INVESTING

E XCH A NGE T R A DED PRODUCTS

30 September 2018

Record global growth for passive products

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he Boston Consulting Group (BCG) has published an expansive new report, Global Asset Management 2018: The Digital Metamorphosis. Among its findings is that value of global assets under management (AUM) rose by 12% to $79.2tn in 2017, from $71.0tn in 2016. This represented the strongest annual growth since 2009, when assets rebounded from the depths of the global financial crisis the year before. The report also states that among asset management products, passives were the fastest-growing category by far in 2017, with a record 25% increase in AUM. “Traditional active products continued to lose share against solutions and specialties.

Active now represents just one-third of AUM, compared with 57% in 2003, even though strong flows in active fixed income more than compensated for outflows in active equity.” (Solutions, specialties and alternatives now own 50% of the market, versus one-third in 2003.)

Much of the year’s passive growth came by way of record net new flows into passive products, helped by the strong performance of equities markets, where most passive funds are invested.

“The results confirmed investors’ continuing shift to passive strategies, both in the retail segment (thanks to transparency and, in particular, the distribution fee ban) and in the institutional segment.”

The report adds that “unfortunately, the growth of passive AUM provides limited revenue to asset managers”. Passive assets, valued at $16tn and representing 20% of AUM in 2017, produced revenues of $17bn – just 6% of the industry’s total revenues.

“Although passives are increasingly popular, their margins are slender.

Players should therefore focus on identifying higher-fee growth opportunities.”

Banking on smart beta One option for passive players is smart-beta products, which passively track an index but include an active, rules-based component.

“Although smart beta is still a small category, with just $430bn in AUM or 0.5% of the global total, it has grown by 30% a year since 2012.

In the future, smart beta will pose

a substantial threat to traditional active players – potentially even greater than that of the overall shift to passives. That is because smart beta seeks to replicate active management results at lower cost to investors,” the report states.

Fee levels for smart beta equity funds average about 35 basis points, well below the average of about 50 basis points for active equity products.

“We believe that smart-beta growth

Traditional active players tempted to capitalise on this growth will need to take advantage of scale and an industrialised approach to be profitable.”

Zero, zilch, nada Meanwhile, Boston-based Fidelity Investments has fired a major bombardment in its low-fee index fund war against rival Vanguard by launching two stock index funds with

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will become a driver of organic zero expenses. The two new funds are consolidation in the industry going the Fidelity Zero Total Market Index forward. The winners in smart beta Fund (FZROX) and the Fidelity Zero should be able to leverage their scale, International Index Fund (FZILX.) along with any early The total market index investment they fund seeks to provide make in relevant data investment results that AMONG ASSET infrastructure, to correspond to the total maintain lower fees return of a broad range MANAGEMENT than those that follow.” of publicly traded PRODUCTS, The report adds that companies in the US. PASSIVES WERE The International the industry’s large passive players have Index Fund seeks to THE FASTESTdominated smart beta. provide investment GROWING “But a few large results that correspond CATEGORY BY active players, after to the total return of failing to join the foreign developed and FAR IN 2017 first-movers into emerging stocks. In passives, have joined addition to being zero the smart-beta fray, hoping to cost, both funds are offered with no capture some of the new opportunity. minimum to invest.

A decade ago, Fidelity and Vanguard were running neck-andneck when it came to AUM. Now Vanguard – the biggest provider of index funds – manages over double the assets that Fidelity does. By introducing the new zero-cost index funds, Fidelity appears to be on its way to changing that.

In a company press release, Kathleen Murphy, president of Fidelity Investments’ personal investing business, says: “Fidelity is once again rewriting the rules of investing to deliver the unparalleled value and straightforward investing options that individuals need and deserve.”

She adds: “We are charting a new course in index investing that benefits investors of all ages – from millennials to baby boomers – and at all affluence levels and stages of their lives.

The ground-breaking zero expense ratio index funds combined with industryleading zero minimums for account opening, zero investment minimums, zero account fees, zero domestic money movement fees and significantly reduced index pricing are unmatched by any other financial services company.”

What do these free index funds mean for financial advisers? Robin Powell of the UK’s Regis Media, posted a series of reactions on his blog, including these: “For the advice profession it’s good news and bad news.

The good news is advisers can implement their advice for clients even more cheaply than before using low-cost or free funds.

The bad news is that the trend toward unbundling and lower cost will not stop at investment products. Advice fees will come under further scrutiny, with enabling technologies like roboadvice and increasing transparency catalysing this trend.”

- Jeff Ptak, Global Director, Manager Research, Morningstar “Investors will struggle to navigate the flurry of index funds, creating an opportunity for sophisticated advisers to help them distinguish between smart innovations and gimmicks. And it’s not a moment too soon because the days of fund companies paying advisers to sell their wares are ending.”

- Nir Kaissar, financial adviser and Bloomberg columnist

30 September 2018

TERENCE GREGORY CEO, Ecsponent Limited

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n 1970, the economist and Nobel Laureate Milton Friedman infamously claimed that to fulfil its responsibility to shareholders, who are the providers of capital, business should primarily focus on activities that increase profits.

Nearly 50 years later, the stakeholders in business have evolved and the debate about management’s primary responsibility towards shareholders has continued in boardrooms, with regulators and in the public domain, asking: How can companies best serve their stakeholders and society?

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The custodians of capital: Management’s commitment to stakeholders

of conduct expected from directors, that compels them to act honestly, in good faith and in a way they reasonably believe to be in the best interests of, and for the benefit of, their companies.

this one stakeholder group, the pursuit of yield should never overshadow the objectives of creating a free, peaceful and just society.

As such, most companies recognise their responsibility of protecting the Governance frameworks interests of all stakeholder groups – as guides including employees, suppliers, clients Considering Friedman’s full statement and the communities in which they of primarily pursuing profit without operate – in addition to fulfilling its deception and fraud, one would obligations to shareholders. In other expect that the Companies Act, words, in addition to maximising which has improved the transparency shareholder returns, successful and accountability of directors’ and management teams consider the prescribed officers’ conduct, would be ethical, societal and environmental enough to protect shareholders. Yet, impacts of their decisions, policies and Who are the custodians of recent spectacular collapses have led to continued operations. shareholders’ capital? massive fallouts, reputational damage, Poor corporate governance can lead to In fairness to Friedman, his claims did and billions of investors’ money lost. a downfall of the largest companies but come with a caveat that the pursuit of The source of these collapses can also contribute to a breakdown of profit is the company’s raison d’être “so regularly points to management teams Best interests beyond an ethical society. By acting as conduits long as it stays within the rules of the chasing ideals of creating shareholder shareholders through which ethics can assimilate game, which is to say, engages in open value while trying to feed the Coupled with the pursuit of profit in to society, and holding each other to and free competition without deception obsession of fund managers and other a governance-driven organisation, a higher ethical standard, companies or fraud.” stakeholders with each year’s results. companies are also being measured in are not just serving the needs of their This proviso is in line with the In this frenzy, the executives failed respect of their impact on society. It is stakeholders but play a role in rebuilding requirements of the Companies Act to invest in long-term growth, amid argued that while maximising profit for a business environment based on of 2008, which addresses the standard headline grabbing accounting scandals, shareholders creates economic value for accountability and responsibility.

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resulting in them destroying the value they were supposed to create.

The concealment of these actions can also be ascribed to the fact that most measures of good corporate governance rely on compliance and compliancerelated issues. However, purely checking the right boxes does not go far enough to protect shareholders, which aligns with the requirements of King IV. With the introduction of King IV, which focuses specifically on the concept of stakeholder inclusivity and ethical leadership, it is no longer good enough for companies to indicate compliance with the code or explain noncompliance. Instead, they must comply and explain how they comply, which enhances transparency significantly.

2018/04/18 5:46 PM

RISK

30 September 2018

RISK

14

The business owner’s guide to insurance

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hether an entrepreneur, dentist, lawyer, accountant or even a marketing professional, small business owners working to win over clients and make a success of their business must protect their most valuable financial asset – themselves. That’s the word from John Marsden, Managing Director of Citadel Financial Protection.

Marsden emphasises that while big companies generally have a succession strategy in place to ensure continuity should the unexpected strike, small business owners hold the reins.

“They therefore need to consider how best to protect their personal and business circumstances should they be unable to work and ensure that their families will still be provided for,” he says.

“Life doesn’t stop when small business owners are ill or injured – they will still need to put food on the table, pay bills and make sure that their business doesn’t suffer unnecessarily in their absence. It only makes sense then to insure the machine that is making the money.”

He points out that while insurance is often a grudge purchase, because people are buying something they hope never to need, the reality is that life is uncertain.

“Just look at the events of the past year – if the devastation of the Knysna fires or even the Cape Town water crisis has taught us anything, it is to hope for the best but prepare for the worst.”

To help guide small business owners in making sure that they’re covered, Marsden briefly explores different types of insurance products: • Income protection An income protection plan will pay out a lump sum or a monthly benefit if business owners are no longer able to work as a result of an illness or disability. This means they will still be able to meet their daily living expenses, or potentially hire someone to help manage the business in their absence.

In case of permanent disability, it’s advised that they check the age the policy will pay out to, bearing in mind that they would still need to save enough money from this income to provide for their comfort in retirement.

For example, some monthly income benefit policies will pay out to the age of 55 years while others may pay out to the age of 70 years.

Small business owners should also check

the waiting period that may be imposed following a claim before the policy will pay out, which could vary from a week to a month, or even a year.

• Buy-and-sell cover Should a business partner, or the co-owner of the business, pass away or become disabled to the extent that they cannot continue in the business, their share of the business could fall to their beneficiaries – unless there is a legal document in place outlining the terms for the other partner to buy back their share of their business from their estate, known as a buy-and-sell agreement. Having an up-to-date buy-and-sell agreement in place will prevent a co-owner’s family from needing to become involved in the business, and ensure that the other partner has the power to select who the new business partner would be (if any) should the co-owner die, or vice versa.

In cases where the business owner or partner are concerned that they may not have enough cash in reserve to buy out each other’s share of the business according to the terms of an agreement, they could choose to take out buyand-sell cover. Essentially a form of life cover, the pay-out from this policy would mean that the owner or partner would be able to offer each other’s family a fair price for each other’s share of the business, and ensure the continuity of the business.

Note, however, that the business owner and the business partner must not pay the premiums on their own policies, as this would mean that the benefit would become subject to estate duty tax. In other words, Partner A must pay the premiums on Partner B’s policy, and vice versa. Having the company cover the cost of the policy premiums could also trigger estate duty tax.

• Key person insurance Key person insurance offers businesses financial protection against the loss of an employee crucial to its running by paying out a lump-sum benefit to the company should they die or become permanently disabled.

This means that should the business owner, a partner or key employee suffer an accident or illness, the business would still be able to meet its expenses while a replacement was found or trained, or else that the business’

debts could be settled, and employees provided with a severance benefit should the business need to close.

• Business overheads cover Business overheads cover is intended to offset the business’ expenses if the business owner or a key employee die or become disabled, by paying a monthly amount to the company. This money could then be used to pay day-to-day expenses, rent, utilities or even salaries.

As this cover is intended to act as a stop-gap measure, however, the policies tend to offer protection for a shorter period of usually up to two years.

• Short-term and liability insurance The business may have several physical assets that are crucial to its running. The business owner should therefore consider insuring their company building, motor vehicle and company equipment against loss through fires, floods, storms, theft or malicious damage.

For instance, if they have a legal or medical practice that uses highly sensitive information, they could additionally consider more specialised cover against the loss of electronic and IT equipment, or even cover against data loss resulting from cyber-crime.

They could also consider liability insurance such as professional or public liability insurance to protect against financial loss resulting from settling a claim or providing compensation to a third party, or requiring legal representation.

Marsden notes, however, that with so many different types of insurance available, it can be extremely difficult to decide upon the appropriate types and amount of cover. He recommends that small business owners consult a financial adviser who can offer a balanced view of which insurance is practical and necessary to individual situations, and who can help business owners understand the terms and tax implications of their individual policies.

John Marsden, Managing Director, Citadel Financial Protection

16

RISK

30 September 2018

Our aim is to change the life insurance industry for the better

I

n the past, insurance providers have offered mainly lump sum benefits – especially for Critical Illness, Disability and Life cover. “While a lump sum is a great way to settle debts or once-off expenses, we don’t believe they should be used to provide an ongoing monthly income,” says FMI CEO Brad Toerien.

“Using a lump sum to provide an income is a problem because it’s impossible to know how much cover your clients need, resulting in them being either over- or under-insured.”

FMI, a division of Bidvest Life, recently conducted the #RealityCheck consumer survey, a first of its kind for South Africa. “We conducted the survey to understand the perceptions of our industry, and to introduce the realities that affect advisers and clients today. Our aim is to change the life insurance industry for the better, and to help protect the income of millions of South Africans in times of illness, injury or death,” explains Toerien.

The study showed that given a choice, the majority of people would choose an income pay-out over a lump sum. And yet, traditional life insurance benefits are still predominantly lump sum based. According to an FMI Disability Cover Study, 77% of disability cover sold in South Africa is lump sum. Given that with all insurers, Disability Lump Sum only pays out for permanence, this ignores the fact that what you are really trying to protect is your client’s income stream and this leaves people dangerously exposed.

“We believe that people inherently understand the benefits of an income because it makes sense; it’s how they think about their lives,” Toerien adds.

Advantages of putting income first: • Income benefits mimic the income stream your client is trying to replace, making them easier to understand and therefore easier to sell • Income benefits simplify the advice process – there is no need to make assumptions to calculate how much lump sum cover your client needs • Income benefits make servicing the policy simpler in the long-term as all you would need to do is update salary amounts or monthly income with the insurer in order to ensure your client has the correct cover in place • Income benefits adapt to your client’s requirements as their life changes – the sum assured effectively reduces as they approach retirement age, unlike Lump Sum benefits • In the event of a claim, Income benefits remove all the risks (behaviour, investment, inflation, longevity) of investing a lump sum to provide an income • Income benefits are typically far more cost effective than a lump sum • Life Income provides beneficiaries with estate liquidity while estate affairs are being concluded and can be used to give clients flexibility to tailor specific solutions to fulfil their individual circumstances

and needs of their dependents e.g. to cover child maintenance obligations, making provision for a child’s education or taking care of a dependent parent • Lump Sum only benefits are 66% more likely to lapse in their first year, compared to Income only benefits (according to FMI’s 2017 Lapse Report).

So, it begs the question… why doesn’t everyone have income protection?

“We, at FMI, are on a mission to challenge how insurance is bought and sold. We believe that protecting someone’s future income is the most important element of any person’s financial plan, and that an individual should protect their income before anything else, for both temporary and long-term disabilities, and only use a lump sum for once-off extra expenses. It’s time to go back to basics and to put income first. It’s time to protect your client’s ability to earn an income, and to look after their life before preparing them for death,” says Toerien.

Brad Toerien, CEO, FMI

More than just Electronic Signatures.

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18

RISK

30 September 2018

WIMPIE MOUTON Executive, PPS Life Broker Services

L

Protecting your client’s income: How much cover do they need?

et’s put an important peg in the ground: Your client’s income is their greatest asset. It’s the key source they fund their lifestyle with, which may include any of the following:

Most people are not able to survive without an income and would be in a dire situation should they become disabled. Luckily income protection benefits are there to ensure your client can continue living the lifestyle they want, should they become disabled.

So as a point of departure, it’s critical to consider income protection benefits as the first item in your client’s financial plan.

How much cover does your client need?

The short answer to this question is, ensure that they have enough cover to continue funding their current lifestyle. But let’s unpack what that means, as it’s often not just a matter of putting their monthly salary back in their pocket. Professionals often earn income from multiple sources, in diverse ways.

Take a successful professional working in a corporate environment as an example: these company packages frequently include performance-related bonuses, and they often form a substantial part of such an individual’s income. They might not be used to fund monthly expenses, but they certainly play an important role when it comes to hobbies, holidays, loan repayments or savings. As such, if your client

neglects to cover these bonuses, they neglect to cover part of what helps them live the lifestyle they want.

Furthermore, some professionals earn income from multiple sources. For example, a professional might use their knowledge and skills to run their own business (where they earn an income), as well as act as an independent trustee or board member of a different organisation or association, which remunerates them for their services. Again, this means that the income from his/her own business is not the only source of lifestyle funding, and these additional sources also need to be considered.

Also, professionals who run a business (for example, a doctor with a practice) are not only required to look after their personal financial affairs, to a considerable extent they are also required to ensure the continued running of their business, which includes funding business expenses. In this case, if your client ignores the business expenses, they neglect to ensure the continued running of the business that provides them with their income.

Converting life cover into monthly income

L

eaving dependants financially secure on death is potentially one of the most important aspects of a holistic personal financial plan. The ability to structure one’s wishes according to one’s personal requirements is essential. For this reason, Liberty has enhanced its Lifestyle Protector Offering with the Death Income feature to help clients structure their benefits according to their beneficiaries’ needs.

Kresantha Pillay, Head of Lifestyle Protector at Liberty, answers important questions related to this enhancement to the death benefit.

Why would clients want to leave a monthly income and not a lump sum to their beneficiaries?

Many beneficiaries don’t have the knowledge or experience to manage large lump sums of money. Clients may need a solution where the life cover benefit in place can be adapted accordingly. At time of death, once the claim has been submitted and minimum requirements received, we aim to make payment as soon as a month after death. This is to reduce the financial impact of the death of the life-assured on the family.

What is the actual enhancement to the Death Benefit and why is this important?

The enhancement allows you to choose to have a monthly income paid to your beneficiaries in the event of your death. When the claim is submitted and the benefit proceeds are paid, it pays out a monthly income instead of a lump sum. This ensures that money is available to reduce the financial impact of your death. It also gives you the peace of mind that you are protecting their future and ensuring their financial needs are met.

Liberty has always claimed that Lifestyle Protector is the most comprehensive cover in the industry. Why is Liberty adding this feature now?

That is true. Lifestyle Protector is one of the most comprehensive solutions out there today. However, it is important that we keep our finger on the pulse of the industry and respond to our clients’ ever changing needs.

So, the death income feature still covers the event of death but offers clients the opportunity to choose between a lump sum pay-out and a monthly income for their beneficiaries.

Financial advisers will determine if clients need this benefit From the word go, consumers must have a financial needs analysis done with their financial adviser. This will help them understand the financial impact of a breadwinner’s death in the household. The financial adviser and the client need to establish if beneficiaries have the skills and ability to manage a lump sum.

How could you use this feature to provide your beneficiaries with an income?

Let’s say you bought R2m in life cover to provide for your family should you pass away. You want 50% of the life cover to be paid to your spouse, while the balance must be equally shared between your two children, aged 18 and 21. Your preference is for your children to receive a monthly income for at least five years.

Two years later, you unfortunately pass away. R1m is paid to your spouse.

Your first child receives R50 000 as a lump sum. R450 000 is used to buy a Liberty investment product that would provide a monthly income for the next five years.

Your second child would have received R100 000 as a lump sum and R400 000 would be used to purchase a Liberty investment that pays an income for five years. However, this child could also decide to invest the full R500 000 in a Liberty investment that will pay a monthly income for a longer term of say seven years.

Kresantha Pillay, Head of Lifestyle Protector, Liberty

Beneficiary

Beneficiary Split

Proportion Allocated to Income

Minimum Income Term

Spouse

50%

-

First child

25%

90%

5 years

Second Child

25%

80%

5 years

30 September 2018

HEALTH

19

HEALTH

NHI will devastate private healthcare

T

he latest report from the Institute of Race Relations (IRR) is a detailed critique of the government’s proposed National Health Insurance (NHI) system.

It argues that while South Africa’s deeply deficient public health service is in desperate need of reform, the “main purpose of the NHI is not to improve health services but rather to drive the private sector out of the healthcare sphere”.

The NHI “will help achieve this by putting an end to the medical schemes that primarily fund private medicine and are essential to its survival”, writes author of the report, IRR Head of Policy Research Dr Anthea Jeffery.

At risk – along with the healthcare of the country’s 58 million citizens – is South Africa’s “world-class system of private healthcare, to which some 30% of its population on average, or roughly 17 million people, have access through their medical schemes, health insurance policies or out-ofpocket payments”.

The report notes that South Africa’s 82 medical schemes “are vital in providing access to private healthcare” to 9.5 million people (up from 6.9 million in 1997), of whom 48% are now black, while 11% are so-called ‘coloureds’, seven percent are Indian and the remaining 34% are white.

“Despite this major shift, the government plans to use the NHI to put an end to almost all medical schemes, primarily because of its ideological hostility to the ‘profit’ motive in private healthcare,” the report states.

“The government’s determination to press ahead with a new, vast bureaucracy – likely to cost an unsustainable R500bn at its start and possibly going as high as R1tn – makes no attempt to remedy profound defects in the public health system.”

Jeffery adds that South Africa currently spends 4% of gross domestic product on public healthcare, which is more than many other emerging economies can manage.

“But, despite the best efforts of many dedicated professionals working in the sector, the country gets little bang for its substantial buck. Instead, public healthcare is plagued by poor management, gross inefficiency, persistent wastefulness and often corrupt spending.

“The upshot is that 85% of public clinics and hospitals cannot comply with basic norms and standards, even on such essentials as hygiene and the availability of medicines.

Cases of medical negligence – often involving botched operations or brain damage to newborn infants – have increased to the point where claims for compensation total R56bn.

This is more than a quarter (27%) of the entire R201bn budget for public healthcare in 2018/19.”

Instead, according to the report, the NHI “assumes that throwing more resources at the public sector will provide a cure-all, whereas poor skills, cadre deployment, and a crippling

lack of accountability lie at the heart of the malaise and will have to be overcome.”

By contrast, it's suggested that the NHI will likely undermine the potential for improvements.

“South Africa is already short of nurses, doctors, specialists and other health providers, but the NHI offers no credible means of increasing their supply. On the contrary, the pool of available health providers and facilities is likely to shrink once the NHI takes effect.”

This, Jeffery says, is firstly because only 15% of public clinics and public hospitals currently do well enough on basic norms and standards to qualify for NHI participation.

“The remaining 85% fail to maintain proper standards of hygiene and the like and will be barred from taking part. In addition, many private specialists, doctors and other health providers with scarce skills might decide to emigrate, rather than subject themselves to NHI controls over their fees and treatment decisions.”

The report advances proposals for a successful healthcare system available to all.

“Universal health coverage is already available, mostly for no charge, through the country’s public clinics and hospitals.

To function better, these need merit-based appointments, strict accountability for poor performance, and effective action against corruption and wasteful spending. Publicprivate partnerships would also help improve their operation.”

Jeffery says the burden on the public system should also be reduced by increasing access to private healthcare.

“Low-cost medical schemes and primary health insurance policies should be allowed, while poor households should be helped to join these schemes or buy these policies through tax-funded health vouchers.

‘To help spread risks, medical scheme membership and/or health insurance cover should be mandatory for all employees, with premiums for lower-paid employees buttressed by employer contributions for which businesses would garner tax credits.

Medical schemes and health insurers would then have to compete for the custom of South Africans, which would encourage innovation and help to hold down costs.”

But none of these solutions will emerge through NHI, Jeffery adds.

The report warns that “by the time people realise that the NHI cannot deliver on its golden promises, the private healthcare system will effectively have been destroyed”.

Dr Anthea Jeffery, IRR Head of Policy Research

A ‘medical aid revolution’ is coming

T

he findings and recommendations highlighted in the provisional report issued by the Health Market Inquiry (HMI) underline the urgent need to change the way medical scheme options are designed, says Jeremy Yatt, Principal Officer of Fedhealth Medical Scheme.

“Although there is very little room to manoeuvre due to legislative constraints, medical schemes should find ways to empower members by addressing their concerns around affordability, transparency and flexibility,” he says.

Over the last six months, Fedhealth has carried out extensive research with its member base and the overriding message is that members want to be in control; they want flexibility and they want choice.

“Members want more of a say over what their cover should be, how their daily benefits are used, and they don’t want to pay for benefits they are not using. Therein lies the opportunity. There is not one medical scheme in South Africa that offers that level of flexibility,” says Yatt.

Unfortunately, medical schemes have been doing the same thing for decades, with very little differentiation between schemes.

“While many claim to be personalised to an individual, the reality is that personalisation only stretches as far as placing that individual into a generic category and benefit group that more or less fits one facet of their lives.

There is little transparency and members have limited control over how their money is allocated,” he adds.

Medical schemes have also been hamstrung with legislation for many years now, making it difficult for schemes to be innovative. Unlike other forms of insurance, medical schemes are prohibited from rewarding or penalising members for modifying their behaviour.

“Nevertheless, the HMI’s provisional report highlights the urgent need for change and it’s time for the medical schemes to step up to the plate.

We believe it is time for a new approach that is going to transform the Jeremy Yatt, industry. Watch this Principal Officer, space,” says Yatt.

Fedhealth Medical Scheme

BOOKS ETCETERA

20

BOOKS ETCETERA

EDITOR’S BOOKSHELF

OFF THE CLOCK FEEL LESS BUSY WHILE GETTING MORE DONE

BY LAURA VANDERKAM Most of us feel constantly behind, unsure how to escape feeling oppressed by busyness. Unlike other time-management gurus, author Laura Vanderkam believes that in order to get more done, we must first feel like we have all the time in the world.

In this book, Vanderkam reveals the seven counter-intuitive principles the most time-free people have adopted. She teaches mindset shifts to help you feel calm on the busiest days and tools to help you get more done without feeling overwhelmed. You’ll meet people such as: • A head teacher who figured out how to spend more time mentoring teachers, and less time supervising the cafeteria • An executive who builds lots of meeting-free space into his calendar, despite managing teams across multiple continents • A CEO who does focused work in a coffee shop early in the morning, so he can keep an open door and a relaxed mindset all day • An artist who overcame a creative block and reached new heights of productivity, by being more gentle with herself, rather than more demanding.

The strategies in this book can help if your life feels out of control, but they can also help if you want to take your career, your relationships and your personal happiness to the next level.

Vanderkam has packed this book with insights from busy yet relaxed professionals, including ‘time makeovers’ of people who are learning how to use these tools. Off the Clock can inspire the rest of us to create lives that are not only productive, but enjoyable in the moment.

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

30 September 2018

GOOD CAPITALISM, BAD CAPITALISM – THE ROLE OF BUSINESS IN SOUTH AFRICA

BY RAYMOND PARSONS WITH ALI PARRY South Africa has entered a new era, with the country’s recently elected president, Cyril Ramaphosa, promising a ‘new dawn’. But will President Ramaphosa and his administration, together with business and labour, be able to turn the economy around and at last satisfy the aspirations of millions of people who, for decades, have been promised better lives? And what role should business – and organised business – be playing in all of this?

Although business is the main driver of the economy, it has for years been a passenger in economic policy-making.

These and other questions relating to South Africa’s complex character and uncertain future prospects are thoroughly explored in this book – a work that offers a balanced and absorbing analysis of what various institutions and individuals have (and have not) done to eradicate the legacy of apartheid and bring South Africa to where it is today.

BORN TRUMP – INSIDE AMERICA’S FIRST FAMILY

BY EMILY JANE FOX To truly understand America’s forty-fifth president, Donald J Trump, author and Vanity Fair journalist Emily Jane Fox argues that you must know his children. Their own stories, she says, provide the key to unlocking what makes the president tick.

Even before Trump’s oldest child, Don Jr., was born, Donald told friends that he wanted at least five children – just to make sure there was a greater probability one would turn out like him. His vision didn’t pan out exactly as he’d imagined, but Trump’s children each inherited some of his traits – as one source says, “Collectively, they make the whole.”

Born Trump is Fox’s richly detailed look at Trump’s five children (and equally powerful son-in-law, Jared Kushner), exploring their lives, their roles in the administration, their relationships with their father and with one another.

THE BANKER’S WIFE

BY CRISTINA ALGER The Banker’s Wife is a gripping thriller that deals with the world of complex international finance and billionaire banking.

As the book commences, Annabel’s seemingly perfect ex-patriate life in Geneva is shattered when her banker husband Matthew’s plane crashes in the Alps. When Annabel finds clues that his death may not be all it seems, she puts herself in the crosshairs of powerful enemies and questions whether she really knew her husband at all.

Meanwhile, journalist Marina is investigating Swiss United, the bank where Matthew worked. But when she uncovers evidence of a shocking global financial scandal that implicates someone close to home, she is forced to make an impossible choice.

The Banker’s Wife is a first-rate thriller, delivering a huge dose of suspense and intrigue due to its perfectly believable plot.

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