NFB Sensible Finance Magazine Issue 25

A FREE publication distributed by NFB Private Wealth Management

NFB

Issue 25 November 2013

Eastern Cape's Community...

PERSONAL FINANCE Magazine

A STRANGE WORLD great expectations meets reality check

PROTECTING YOUR PORTABLE POSSESSIONS what is covered when you leave home?

MANDELA DAY NVest Financial Holdings is making a difference! private wealth management

“The best way of preparing for the future is to take good care of the present, because we know that if the present is made up of the past, then the future will be made up of the present.

Only the present is within our reach. To care for the present is to care for the future.�

- Buddha

private wealth management

Providing quality retirement, investment and risk planning advice since 1985. fortune favours the well-advised contact one of NFB's private wealth managers: East London tel no: (043) 735-2000 or e-mail: info@nfbel.co.za Port Elizabeth tel no: (041) 582-3990 or email: info@nfbpe.co.za Johannesburg tel no: (011) 895-8000 or email: nfb@nfb.co.za Web: www.nfbec.co.za NFB is an authorised Financial Services Provider

sensible finance

ED’SLETTER

editor Brendan Connellan bconnellan@nfbel.co.za

Contributors Brendan Connellan (NFB East London), Shaun Murphy (Klinkradt Murphy), Julie McDonald (NFB East London), Leigh Köhler (Glacier by Sanlam), Zuki Mbekeni (NFB East London), Michelle Wolmarans (NFBST East London), Lunga Nkonki (NFB East London), Andrew Duvenage (NFB Gauteng), Liberty Life, Grant Berndt (Abdo & Abdo), Bryce Wild (NFB East London), Robyne Moore (NVest Holdings East London), Debi Godwin (IE&T), Travis McClure (NFB East London), Robert McIntyre (NVest Securities)

Advertising Robyne Moore rmoore@nvestholdings.co.za

layout and design Jacky Horn TA Willow Design jacky@e-mailer.co.za

Address NFB Private Wealth Management East London Office NFB House, 42 Beach Road Nahoon, East London, 5241 Tel: (043) 735-2000 Fax: (043) 735-2001 E-mail: info@nfbel.co.za Web: www.nfbec.co.za

Photos used in this magazine - 123rf.com

The views expressed in articles by external columnists are the views of the relevant authors and do not necessarily reflect the views of the editor or the NFB Private Wealth Management. ©2013 All Rights Reserved.

No part of this publication may be reproduced in any form or medium without prior written consent from the Editor.

a sensible read

I

got to feel how poor Achilles felt when he was taken down in the Trojan War after recently snapping my Achilles' tendon while playing a game of squash (not to mention also feeling my age).

Ten weeks; one operation; physiotherapy and much frustration later, I am well on the road to recovery. The unforeseen accident has, however, had a much greater impact on me than I could have envisioned on the night that it happened, with several lessons also learned.

The tendon repair operation was followed by six weeks on crutches with my foot in a cast-boot. Until then, I'd never given a second thought to how much one's life is affected when making use of those little props that soon started to feel as though they were extensions of my arms. One forgets, or does not realise, that having one inoperative leg means that driving a manual transmission isn't possible and can lead to complete reliance on others just to be able to leave the house; go to work or go shopping. Shopping is completely impractical as there are no free arms to push a trolley or carry a basket. I tried carrying a basket by hanging it on a crutch and shortly after landing on my butt on the floor next to my milk and orange juice, vowed not to try that again.

Showering while on one leg was another failed experiment.

What had been a mere three or four metre hop on dry tiles just minutes earlier, soon became a three or four minute one-footed shuffle on a wet slippery floor; convinced that at any moment I'd be lying parallel to the floor with a somewhat damaged head.

The experience, as trying as it has been, has fortunately been a temporary one. It has made me appreciate my good health and given me empathy for the elderly and disabled. I'd never before been able to even imagine the fear that someone can feel climbing stairs or walking on a slippery floor and people on crutches seemed mobile, so I had never gone out of my way to offer much assistance.

Thankfully the injury wasn't more serious and I won't be making use of my disability insurance just yet (though it has shown me why I have it in the first place!). Isn't it astonishing that it usually takes an accident, illness or death for us to learn important lessons such as these?

Brendan Connellan - Editor and Director of NFB Email your full name to info @nfbel.co.za to subscribe to NFB's free economic electronic newsletters. another aspect of our comprehensive service

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SENSIBLE CONTENTS

nfb sensible finance

November 2013

4 NFB CLIENT SATISFACTION SURVEY FEEDBACK See what our clients think of us! By Brendan Connellan, NVFH & NFB Director - NFB East London

6 NEW B-BBEE CODES OF GOOD PRACTICE Some of the salient features discussed. By Shaun Murphy, Partner - Klinkradt Murphy

7 SURETYSHIP PROTECTION Are you missing something? By Julie McDonald, Financial Paraplanner - NFB East London

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8 10 STEPS TO A CAREFREE RETIREMENT Making it a successful one. By Leigh Köhler, Head of Research at Glacier by Sanlam

9 MARRIAGE CONTRACT OPTIONS An important pre-wedding decision. By Zukiswa Mbekeni, Financial Paraplanner NFB East London

10 PROTECTING YOUR PORTABLE POSSESSIONS What is covered when you leave home? By Michelle Wolmarans, Manager - NFB Insurance Brokers

11 BUDGETING The foundation of every financial plan. By Lunga Nkonki, Trainee Financial Paraplanner - NFB East London

14 A STRANGE WORLD

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Great Expectations meets Reality Check. By Andrew Duvenage, Director/Private Wealth Manger, NFB Gauteng

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16 LIGHTING THE FLAME A proud track record of innovation and diversification. Contributed by Liberty

18 LIABILITY FOR MUNICIPAL CHARGES Purchaser….beware! By Grandt Berndt, Abdo & Abdo

21 LISTED PROPERTY AT A GLANCE The upward trend is clear. By Bryce Wild, Financial Advisor - NFB East London

24 OUR CONTRIBUTION TO MANDELA DAY You too have the ability to impact the life of others. By Robyne Moore, Compliance & Operations Administrator - NVest Financial Holdings East London

25 ADMINISTRATION OF AN ESTATE Possible obstacles which may be encountered. By Debi Godwin, Director Independent Executor & Trust

27 Q &A. You ask. We answer. Advice column answering your investment, personal finance, life and/or risk insurance questions with Travis McClure, Private Wealth Manager - NFB East London

28 GET YOUR DIVIDEND FROM VIVIDEND

By Rob McIntyre, director/stockbroker - NVest Securities

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SENSIBLE FEEDBACK

NFB Client Satisfaction Survey feedback See what our clients think of us! By Brendan Connellan, NVFH & NFB Director - NFB East London “The more you engage with customers the clearer things become and the easier it is to determine what you should be doing.” - John Russell, President, Harley Davidson NFB conducts an annual electronic client satisfaction survey in order to gauge whether or not the company and its staff are meeting the service expectations of our clients. The information gathered from this is an important tool which helps us to develop action plans tailored to meet and exceed client expectations.

The results from our 2013 survey, which was conducted in July and emailed to approximately 2,900 clients, received many responses, far exceeding our expectations. This robust response rate ensures a high level of statistical validity and a high probability that the results reflect the views of the broader NFB client base.

Bill Gates once said that “your most unhappy customers are your greatest source of learning” and so it is with this in mind that we approached this exercise.

Below we present a summary of our key findings to you.

Clients gave NFB an overall satisfaction rating of 97%, with 84% being “very satisfied”. We were extremely pleased with this overall result, especially given the high number of responses as well as the fact that surveys are often responded to by dissatisfied respondents as an outlet for their frustrations.

NFB financial advisors received a satisfaction rating of 97%, with 87% of clients being “very satisfied”. We believe that this excellent result is directly related to the recent process of up-skilling our financial advisors, an extensive program which we embarked on several years ago. All of our financial advisors have now obtained industryrelated qualifications with the majority of NFB advisors having postgraduate degree level qualifications. Several have more than one postgraduate qualification and are now Certified Financial Planner ® professionals.

NFB's administrative abilities and personnel also

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scored exceptionally well, with a satisfaction rating of 99.4%, with 90% of clients being “very satisfied”.

Once again, we believe this to be indicative of the training process embarked upon by our administrative team. A large number of our administrative staff have studied or are in the process of studying at tertiary level.

We were also encouraged to see that 92% of clients felt that they would be likely to recommend our products and/or services to others and that 94.5% of our clients were satisfied with the amount of personal contact that they receive from NFB. What was interesting for us to note is that many clients are not aware of the full range of services that NFB offers. For example, although 95% of our clients knew that we offer investment planning and 87% that we offer retirement planning, only 65% were aware that we offer risk assurance, this being life insurance; disability and business assurance.

Only 47% of the respondents were aware that we offer short term insurance services; 53% were aware that we offer medical aid advisory services; 67% were aware that our services include the drafting of wills; the administration of deceased estates and a stock broking service and 62% were aware that we have a division that specialises in Group schemes for businesses.

We have thus identified a need to ensure that we take greater effort to inform clients about our comprehensive range of products and services.

NFB management are very pleased with the overall outcome of the survey. Despite the very positive feedback, we believe that there is always room to improve. We are confident that the action plans put in place as a result of this survey, will help us to take our service levels to an even higher level and that future surveys yield even better responses.

We thank all those who took the time to complete the survey and hope that the results prove our commitment to achieving the highest levels of client service and satisfaction. If you are already an NFB client, we thank you for your patronage. If you are not already an NFB client, we hope that you will put our services to the test.

SENSIBLE ADVICE

NEW BROAD–BASED BLACK ECONOMIC EMPOWERMENT CODES GAZETTED Some of the salient features discussed. By Shaun Murphy, CA (SA), Partner – Klinkradt Murphy

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he Minister of Trade and Industry, Rob Davies, announced at the B-BBEE summit that the new Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice will be released by government on Friday, 11 October 2013.

Below are some of the salient features of the revised codes which were revealed at the summit: = The new thresholds will be as follows:= EME < R10m = QSE < R50m = Generic > R50m = All companies will have to report their BEE Performance = There will be a 12 month transitional period = There will be good news for small black-owned businesses in that enterprises that are 100% owned by black South Africans and have an annual turnover of R10-million or less will now be automatically awarded a "level one" B-BEE status, the highest level that can be obtained = Companies of the same size that are at least 51% black owned will be recognised as "level two" B-BBEE contributors. These companies will merely be required to produce an affidavit as proof of their B-BBEE status = The Generic and QSE scorecards will have 5 elements = Ownership 25 points = Management and Employment 15 points = Skills Development 20 points = Supplier Development and Procurement 40 points = Social Development 5 points = Both QSE's and Generics will drop one BEE level if sub minimums are not achieved in the priority elements of Ownership, Skills Development and Supplier Development. Sub-minimum requirements are: = Ownership - 40% of net value = Skills development - 40% of the element points

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= Supplier Development = 40% of the target for Preferential

procurement = 40% of the target for Enterprise/Supplier

Development = A Value Added Supplier will be redefined as an

entity that can demonstrate that its production and value added activities are in South Africa as opposed to an entity whose net profit and employee costs exceeds 25% of turnover. = Clarity will be provided on Family Trusts; ownership points have been broadened to include designated groups in the main points; and employment equity elements are to be aligned with the Employment Equity Act = The new recognition levels will look as follows: New versus old recognition levels B-BBEE Status Level 1 Level 2

Current Qualification 100 Points

B-BBEE New Qualifcation Recognition Level 100 Points

135%

85 but <100 points

95 but <100 points

Level 3

75 but <85 points

90 but <95 points

110%

Level 4

65 but <75 points

80 but <90 points

100%

Level 5

55 but <65 points

75 but <80 points

80%

Level 6

45 but <55 points

70 but <75 points

60%

Level 7

40 but <45 points

55 but <70 points

50%

Level 8

30 but <40 points

40 but <55 points

10%

Non-Compliant Contributor

<30 points

<40 points

125%

0%

Should you have any B-BBEE related queries or require some advice or assistance, please feel free to contact me on 043 726 9555 or via email at shaun@kliwal.co.za. Klinkradt Murphy are registered B-BBEE Auditors in accordance with the DTI and IRBA guidelines.

Kindly note that this article was written prior to the final gazetting of the codes, and accordingly, some information may have been altered between the writing and publishing hereof.

SENSIBLE PROTECTION

Suretyship Protection Are you missing something?

By Julie McDonald, Financial Paraplanner - NFB East London

F

inancial assistance from a bank or other institution is often required during the initial start up of a business or during a period of growth or expansion. It is common practice for lenders to call for personal surety from the individual persons concerned, irrespective of the legal framework of the business. Once the suretyship agreements have been signed, the funds become available and it's back to business as usual.

The following questions need to be asked: l Do the persons who stood as surety fully understand and appreciate the duties and responsibilities associated with this? l Are they aware of the inherent risks in the event of their death or disability?

What is Suretyship Protection Insurance?

Suretyship Protection is a life insurance policy taken out by the business entity (principal debtor) on the life of the individual (surety) who has stood personal surety for the loan taken by the business entity from a financial institution.

Policy Structure Owner: Business Entity Life Assured: “A” Premium Payer: Business Entity The primary purpose of such insurance is to protect the estate of the person who has stood personal surety (the basis of the insurance as well as the insurable interest). In addition, by protecting the estate, one is also protecting the family and loved ones of the surety.

Section 3 of the Estate Duty Act contains certain provisions where the values of policies are estate duty exempt (for example, if the policy was

not effected by or at the instance of the deceased, if no premium was paid by the deceased and if proceeds are not payable into the deceased's estate). However, for suretyship protection policies, the policy IS effected “by or at the instance of the deceased”, as the primary purpose of the Suretyship Protection Policy is to protect the estate of the deceased. Estate duty therefore applies and upward adjustments to the insured amount need to be made for this.

The policy should be “grossed up” by 25% to compensate for the 20% prevailing estate duty rate. Be careful not to gross up by only 20% as this will result in a net shortfall and being insufficiently insured for surety purposes. The reason for this is best illustrated by way of an example: Assume the death cover on a policy is R10 million.

Example 1: 25% gross up to compensate for estate duty payable “Gross up” amount: R10,000,000 x 25% = R2,500,000 Add to get adjusted death cover amount: R10,000,000 + R2,500,000 = R12,500,000 Estate duty payable: R12,500,000 x 20% = R2,500,000 Net amount available after estate duty paid: R12,500,000 - R2,500,000 = R10,000,000 Example 2: 20% gross up to compensate for estate duty payable “Gross up” amount: R10,000,000 x 20% = R2,000,000 Add to get adjusted death cover amount: R10,000,000 + R2,000,000 = R12,000,000 Estate duty payable: R12,000,000 x 20% = R2,400,000 Net amount available after estate duty paid: R12,000,000 - R2,400,000 = R9,600,000 As can be seen in example 2, using a 20% gross up results in a R400,000 shortfall! continued on page 20...

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SENSIBLE RETIREMENT

10 Steps to a carefree retirement

Making it a successful one. By Leigh KĂśhler, Head of Research at Glacier by Sanlam

E

ach year, as the end of the tax year looms, many investors take advantage of the tax benefits of making additional contributions to their retirement annuities (RA). But so much more goes into the planning of a successful retirement than simply making an additional saving once a year. In this article we look at some of the things that successful investors do to ensure that their retirement years are indeed their 'golden years'.

1. They start investing early The earlier you start saving, the earlier compound interest can start working for you. For each year that you delay saving, the higher your monthly contribution will need to be in order to achieve the same targeted amount.

2. They make additional savings It's unlikely that your company pension fund will sustain you over a potential 30-year retirement period. An RA lets you save over the long term as funds invested cannot be accessed before the age of 55. New generation RA's also allow you to select your underlying investments, with full transparency. You could even include a personalised share portfolio within your RA investment. An RA also lets you make additional contributions at any time, with no penalties if you stop or reduce monthly payments.

3. They increase their contributions in line with inflation Your monthly contribution to your RA will diminish in real terms over time if you don't adjust your contributions in line with inflation. This will result in you contributing less than you think you are.

4. They have exposure to growth assets In order to keep pace with inflation investors need a certain allocation to growth assets, such as equities, in their portfolio â&#x20AC;&#x201C; even post-retirement.

5. They diversify Investors should diversify across asset classes as well as across asset managers. This should reduce the overall portfolio volatility. There is also a strong case for diversifying internationally as expectations are

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that global equities will outperform the local market over the next few years.

6. They stick to their investment strategy Generally, investors who've consulted with a qualified financial adviser and drawn up a diversified, risk-profiled plan, will benefit by sticking to that plan over the long term and not reacting to short-term 'noise' in the market.

7. They look after their health Health and medical care should be prioritised when saving for retirement, as medical costs can form a large percentage of a retiree's spending. It's well documented that medical inflation is much higher than general inflation.

8. They keep active and interested in life Retirement options aren't what they used to be.

These days retirees are opting to start new businesses and even further their studies. These activities give meaning and purpose to their golden years while allowing them to continue to play a role in the economy. The message is clear â&#x20AC;&#x201C; don't stop planning, working or dreaming.

9. They consult with a qualified financial adviser A qualified financial adviser is invaluable in helping you draw up a realistic plan, while keeping emotions out of the decision-making process. An adviser will be able to look holistically at your investment plan, retirement plan, tax situation, and advise you accordingly.

10. They take responsibility No-one said it was going to be easy. But investors can do a lot for themselves by taking an active interest in their investments, by reading and staying up to date on the markets. So be informed, ask questions and take control of your future, starting today.

SENSIBLE OPTIONS

MARRIAGE CONTRACT OPTIONS An important pre-wedding decision.

By Zukiswa Mbekeni, Financial Paraplanner - NFB East London

O

ne of the many important decisions facing couples preparing for marriage is the marriage property regime they choose.

“In community of property” is the default marital regime. Should the couple decide against this default option, a legal document termed an “ante nuptial contract” must be signed before the wedding. The ante nuptial contract spells out the treatment of the couple's financial affairs during the marriage and also determines how the spouse's estates will be handled on dissolution of the marriage. Dissolution refers not only to divorce, but also to the inevitable death of either spouse.

In addition to safeguarding assets in the abovementioned events, it is important to choose the option that suits the couple's long term estate planning needs in the best way. There are three marriage contract options:

In Community of Property. Under this regime, all debt and assets, from the date of the marriage, are divided equally between the two individuals, thereby creating a joint estate. This applies to assets and also debt acquired before and during the marriage. From the date of the marriage, the spouses are jointly and mutually responsible to honour each others debt. Should one spouse become insolvent, both spouses could lose their assets, as they become one entity.

Due to the consequences of exposing even the unknowing spouse to debt and possible disrepute, the law requires written consent from both spouses when entering into any major transactions. These include the buying or selling of property; entering into credit agreements, and the signing of suretyship amongst others.

Out of Community of Property excluding Accrual. This option keeps all the assets and debt of the spouses separate during

and after the marriage. It may be a suitable option for those who have had children prior to their marriage, or those that have built up substantial estates prior to getting married. This option creates no obligation to share assets. In the case of death or divorce, each spouse only has a claim on the assets legally acquired in their name. Should the marriage come to an end, a spouse will have no claim on the property of their spouse. The spouses are able to leave assets to each other only through a will.

Out of Community of Property with Accrual. This could be viewed as “the middle ground”. This regime allows the partners in the marriage to run their independent financial affairs, but requires them to share in the growth of their estates by dividing the estate with the bigger growth equally between the spouses. The ante nuptial contract can be adapted further to include and exclude whatever items the couple wishes in the accrual calculation, and may also include conditions to be met prior to certain assets being shared. This regime attempts to protect the spouse who may have been unable to work due to childbearing and looking after the home, but also allows the spouse who was the provider in the home, to retain the bulk of their estate.

Changing the marital regime after marriage is possible – this does however involve an application to the High Court and a considerable amount of money. Consultation with a legal advisor prior to entering into a marriage will enable the couple to make a well informed decision the first time around.

If you are considering marriage, we also urge you to contact an NFB Private Wealth Manager on 043 735 2000 or info@nfbel.co.za to discuss options available to you in planning your financial future together.

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SENSIBLE COVER

PROTECTING YOUR PORTABLE POSSESSIONS What is covered when you leave home? By Michelle Wolmarans, Manager - NFB Insurance Brokers

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hat happens when you walk out your front door to go to work, school, gym, a social gathering or on holiday with various personal possessions? Once you leave your property the portable possessions that you take with you are no longer protected by your household contents insurance policy.

We often underestimate the value of the possessions that we carry around with us. A typical Mom's handbag could contain the following items: branded sunglasses, bottle of perfume, make up bag, cell phone and wallet. Mom would also probably be wearing her wedding and engagement rings, watch and earrings. The value of these items could easily exceed R10 000. What happens if Mom's bag is grabbed out of her hand, or she accidentally sits on her sunglasses or she takes off her rings to wash her hands and apply hand cream, and accidentally leaves them in a coffee shop bathroom?

Regardless of our age and occupation the reality is that in order to survive and thrive in this technology driven world we all carry expensive electronic gadgets on or with us. We organize our lives and communicate with friends and business partners via cell phones, Garmins, ipads, tablets, gaming devices and laptops.

This begs the question: how do we provide cover for these portable items?

The answer is two-fold: firstly, cover known as General All Risks must be included on our policies.

General All Risks provides cover in respect of clothing and items designed to be worn or carried on a person including sporting equipment anywhere in the world.

Secondly, it is important to be aware of the fact that certain high risk items such as cell phones, ipads and latops are not covered by General All Risks and therefore have to be insured separately.

Insurers also place a limit payable per item in respect of General All Risks cover.

This is best illustrated by means of an example: The Clarke family flies from East London to Johannesburg and en route a suitcase is stolen. The suitcase contains clothing valued at R5 000, toiletries valued at R1 000, a camera valued at R8 000 and an ipad valued at R5 000. The Clarke

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family has General All Risks cover of R10 000.

The claim will be settled as follows: Clothing R5000 Toiletries R1000 Camera R2000 (limit per item 20% of sum insured of R10 000) Ipad nil (no cover as this item has to be insured separately) Total amount paid R8000 In order to have the claim paid in full, Mr Clarke should have “specified” his camera as a separate item due to the high value of the item; he then would have been paid the full replacement value. The ipad is specifically excluded from the General All Risks cover and should have been insured separately.

It is important to ensure that annual valuations are obtained in respect of specified items to ensure that the sum insured represents the current replacement value.

There has been a significant increase in the amount of All Risks claims submitted in respect of items being stolen from motor vehicles as a result of “remote jamming”. When you press your vehicle remote to lock your vehicle the thief will press their jamming device in close proximity to your vehicle and this will scramble the message sent by your remote with the result that your vehicle will not lock.

Once you are out of sight the thieves simply open your car and help themselves. This creates a problem when a claim is submitted as the majority of insurers will not pay a claim for items stolen from a motor vehicle unless there are signs of forcible and violent entry into the vehicle.

In order to ensure that you are not the next “jamming” victim it is imperative to ensure that your motor vehicle is locked before you walk away.

Manually check or test the doors and the boot.

Should you require more information pertaining to All Risks insurance or would like us to provide you with a quotation, please do not hesitate to contact our qualified marketers or underwriters.

insurance brokers (border)(pty)ltd.

SENSIBLE FOUNDATION

BUDGETING IT'S EASIER THAN YOU THINK! The foundation of every financial plan. By Lunga Nkonki, Trainee Financial Paraplanner - NFB East London

B

udgeting lies at the foundation of every financial plan. It doesn't matter if you're living from paycheque to paycheque or earning six-figures a year, you need to know where your money is going if you want to have a handle on your finances.

Contrary to popular belief, budgeting isn't all about restricting what you spend money on and cutting out all the fun in your life. It is rather about understanding how much money you have and then planning how to best allocate those funds.

While it might make things a lot easier, the secret to being financially independent doesn't only lie in earning a lot of money, but rather in learning to manage the money you have more effectively. Reducing your monthly expenditure; learning not to live on credit and committing to getting rid of debt requires little more than a simple change of attitude.

There are a number of principles which can be applied to help you on your way. Simple concepts, which when applied, are almost certain to improve your financial well-being.

The first, and most important, is to pay yourself first. This means saving the first portion of your income before you pay off anything. You need to have an emergency savings fund or a particular goal you're saving towards. Preferably set up a debit order for this. Savings are important in ensuring you have enough money put away in the event of something coming up unexpectedly.

Secondly, remain focussed. Have a vision that is backed up by a concrete, achievable and realistic plan. Think about getting support if you know you lack discipline by having one person hold you accountable. Keep your vision/goal clear and don't compromise.

Never forget! Know how much money you earn; who you owe and how much you have left.

The only way to know this is by writing down your budget. List your creditors by name - this will make

it more tangible.

Charge down debt. Treat debt like the enemy it is! Develop an aggressive attitude towards debt and you'll soon be rid of it. For example, if you have five outstanding debts, tackle the largest first, this usually accumulates the most interest. Create strategies to get rid of debt and DON'T replace it with another once you have paid it off.

Slow down and take a breath. If you're contemplating a purchase that is not an absolutely necessary item, give yourself a week to think about whether you really need it before you hand over your hard-earned money. Impulse buying is a trap for the unwary.

Lastly â&#x20AC;&#x201C; remember the KISS - Keep It Simple, Stupid! If you spend the first hour of your day checking accounts; tracking spending and adjusting spreadsheet columns, you'll soon lose interest. Try to make your budget as simple as possible. Perhaps limit yourself to as little as three categories, such as household; debt and savings. A cluttered page translates to a cluttered mind, and a cluttered mind knows no action!

Financial freedom takes willingness, commitment and loads of discipline. By developing a budget, you'll start to think more and more about your relationship with money. As with most relationships, it needs tending and attention in order to grow and to remain strong. By having a proper plan in place and sticking to it, you'll be well on your way to sunnier days.

Contact an NFB Private Wealth Manager to assist you with your investing or savings plan on 043 735 2000 or info@nfbel.co.za

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A Strange World: Great Expectations meets Reality Check

By Andrew Duvenage, Director/Private Wealth Manager - NFB Gauteng The story so far The last 5 years have seen incredible performance figures coming out of local markets.

After the financial crisis of 2008, investors have benefited from significant recoveries in asset values, despite the great uncertainty that the world has been living with. At the height of the crisis, and given the massive structural and financial system problems that existed in America and in Europe, not many investors would have predicted the extent to which markets have recovered.

As gratifying as the recovery has been for investors, it does come with concerns due to what can only be described as a large disconnect between market performance and economic reality. In a South African context, we have seen a massive equity and property market surge, yet we are sitting with anaemic economic growth. With the JSE flirting with its all-time high, the conclusion that can be made is that South African businesses (on aggregate) are worth more than they have ever been worth. Logic would dictate that for this to be true and sustainable, these businesses must be operating in very good conditions â&#x20AC;&#x201C; economic conditions that support the businesses operations, revenue streams and consequently their valuations.

But is this the case? South Africa's GDP growth (rate of growth of the economy) has been sluggish (around 3 %). Labour relations in South Africa are not in a good way resulting in significant disruptions in the economy as well as unsustainably high wage increases which negatively influence the profitability of businesses (in fact in this regard, South Africa was rated as the worst of 148 countries in the World Economic Forum's most recent Global Competitiveness Survey). On a macro level, high levels of unemployment (officially at around 25%, but in reality probably a fair bit higher) are of concern. Similarly, the continued underperformance in the education outcomes of the country (where we rank an abysmal 146/148 countries in the same WEF survey) represent massive headwinds to economic performance. While there are certainly bright spots in terms of the South African economy, the economic reality which we currently face, is not an environment in which we would normally expect equity valuations to be at all-time highs.

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Unintended Consequences A logical question would be to ask why we have seen such strong performance in our markets in the context of soft economic conditions. The answer is to a large extent explained by the concept of unintended consequences. After the 2008 economic crisis, central banks across the world aggressively cut interest rates (close to 0% in the US, and 0.5% in the Euro Zone) and pumped money into the financial system. The aim was ultimately to stimulate economic activity and to promote recovery. While we are seeing signs of this strategy succeeding (specifically in the US context), there was a somewhat unintended consequence that arose. Huge volumes of money found their way into financial assets as opposed to into economic activity.

The so called â&#x20AC;&#x153;carry tradeâ&#x20AC;? is a great example of this.

Investors began to take very large sums of money out of the low interest rate environments in the US, Europe and the UK, and started deploying these assets into markets with higher interest rates. Similarly, large amounts of money found its way into equity markets.

Emerging markets were major beneficiaries of this set of circumstances resulting in material increases in equity prices, property prices, and bond markets and in the currencies of these countries. South Africa too benefited from large inflows of foreign money, which helped buoy most market sectors, despite the lack of good, strong economic fundamentals to support the new levels being created.

Non-resident buying of South African bonds

Source: Citi Research, Datastream

The risk of a disconnect The disconnect between financial markets and economic performance represents a challenge for investors. If the logic is accepted that certain “abnormal” factors (extremely low interest rates and huge amounts of liquidity being pumped into global markets) are influencing the performance of markets, one has to consider what will happen when these factors are removed. The risk here is that when global interest rates start to increase, and when the so called “Quantitative Easing” program starts to taper off, we could potentially see significant reductions in asset prices as the tide of global money realigns itself to reflect a new reality.

At this point, the focus will in all likelihood shift back towards economic fundamentals and whether the performance of specific assets justify the prices that they are currently trading at. The concern is that the economic fundamentals may not be supportive of the valuations. As an example, the JSE (on aggregate) is starting to look somewhat expensive when comparing its PE ratio to historical averages. Thus, very strong earnings will need to come out (in a soft economic period) in order to support these valuations.

Listed Equity PE Ratio

The key here is to ignore historic returns and realign ones expectations for returns.

So what is realistic? A good starting point in answering this question is to look at historical returns over an extended period of time. Over the past 30 years the JSE has achieved approximately 17% per annum. Whilst historical performance is just that – historical - it is still a good starting point. A period of 30 years gives a better indication of what should be expected as it contains performance from both good and bad times in the economic cycle. But this is the new South Africa – how can our past performance be an indication of our future prospects? Whilst many fundamentals have remained the same, there have been significant changes to the structure of the SA economy. Changes in fiscal and monetary policy have resulted in a significantly lower inflationary environment, and change in political dispensation has resulted in significant opportunities for economic growth and development. So technically, to use an historic figure as the basis for our future estimates may not be reasonable. Let's look at it from a different angle to get back to our question regarding realistic expectations.

What are the basic components of determining a realistic return? Firstly you need to get compensated for inflation, next for economic growth [GDP], and then be compensated for the risk associated with investing.

JSE ALL Share Index (AJ253)

What does this mean in numbers? o The reserve bank has an inflation target range of 36% o GDP growth is around 3% o A fair equity risk premium for SA is approximately 5% Thus, a simplistic estimate for an expected return in equity investments is in the region of 10-14%. Whilst this method is by no means an exact science, it gives us a useful benchmark to assess our long-term performance.

The implication Realigning Expectations Despite concerns regarding the disconnect that we see and “abnormal” factors that could potentially unwind, the suggestion is not to dump market related assets and sit in cash. What is being highlighted is that investors must be cognisant of risk and must understand their ability to absorb volatility. Unfortunately, the strong performance of markets has resulted in investors disregarding risk, and looking to position themselves more aggressively than is appropriate in order to “get in on the action”. Investors (and advisors for that matter) in times of strong market performance, should aim to capture as much of the upside as possible, but still be cognisant of the risk that exists in the assets that are driving the returns in portfolios.

How does having a realistic benchmark help us? The first outcome is that with lower expected returns, time horizons are going to have to change. The returns of the last 3 years have meant that many investors have achieved their financial goals in record time. This situation is probably not going to be repeated in the near future and thus investors are going to have to shift from a short-term mindset to a long-term outlook. In practical terms this means that investors who have had great success with strategies that can be loosely defined as speculative will have to pay far more attention to their long term strategy, and to do this they will have to focus on asset allocation. Briefly, asset allocation is the blend of the various asset classes [cash, bonds, property and equity] in a portfolio. This blend is determined by factors such as age, timehorizon, appetite for risk, and investment objectives. continued on page 20... sensible finance november13

15

SENSIBLY CAUSIOUS

LIABILITY FOR MUNICIPAL CHARGES Purchaserâ&#x20AC;Ś.beware! By Grandt Berndt, Abdo & Abdo

T

he question of liability for Municipal charges has recently been considered by the Supreme Court of Appeal in the matter of the City of Tshwane Metropolitan Municipality vs Mathabathe and Another.

The case centered around Section 118 (1) and (3) of The Local Government: Municipal Systems Act. In terms of Section 118 (1), the Registrar of Deeds may not register the transfer of property except on the production of a rates clearance certificate issued by the Municipality in which the property is situated and which certifies that all amounts due in connection with that property for all Municipal services and charges during the 2 years preceding the date of application have been fully paid.

Section 118 (3), states that an amount due for Municipal services and charges is a charge upon the property, in connection with which the amount is owing, and enjoys preference over any Mortgage Bond registered against the property.

In the case before the Court, Mr Mathabathe had sold his property and when the attorneys attending to the transfer applied for rates clearance figures, they were informed that the amount required was R162 722,26, of which R151 324,22 was more than 2 years old and termed historical debt.

The Municipality refused to issue the rates clearance certificate against payment of only the preceding 2 years charges as prescribed by Section 118 (1). Mr Mathabathe then launched a Court Application to compel the Municipality to issue the rates clearance certificate against payment of the preceding 2 years charges. He was understandably successful with his Application.

The Municipality, however, launched a Counter Application that Mr Mathabathe or the conveyancing attorneys undertake to pay the balance of the debt, being the historical debt, on

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registration of transfer before they would issue the rates clearance certificate. The Municipality maintained that should they not receive this undertaking or guarantee, that they would lose their right, which was a preference right to even a Bond Holder, to recover the outstanding balance due to the Municipality.

The Court dismissed their Counter Application due to the fact that in terms of Section 118 (3), the Municipal charges are a debt against the property, without a time limit and gives the Municipality preference even ahead of a Bond Holder.

Accordingly, the Municipality is allowed to ultimately sell a property in execution, even though the owner at the time legal action was instituted by the Municipality, was not the owner at the time the Municipal charges in question were incurred.

Thus, unless one makes sure that the Seller's full liability to the Municipality has been settled, the Purchaser could find himself liable for the previous owner's Municipal debt. This concern is exacerbated by the inefficiencies of some Municipalities in their record keeping, the inability of their sometimes untrained staff to issue accurate rates figures and their lack of credit control processes.

In terms of the self same Local Government: Municipal Systems Act, the Municipalities are to have debt collection/credit control policies in place. Thus, whilst a new owner may well be able to argue that it is due to the Municipality not adhering to their credit control policy and that he/she is therefore not liable for the previous owner's debt, this will inevitably by an expensive legal process to follow.

As a result, it is recommended that the Purchaser obtain a warranty from the Seller that all Municipal charges are paid up as at the date of transfer.

“Managing success into the future” Our services include: Accounting • Auditing • Taxation Planning Estate Planning • All Statutory Registration • Business Structuring Concessions • Due Diligence • Business Succession Planning

Contact us on 043 726 9555 for all your queries. partners: Gary Klinkradt ca (sa) and Shaun murphy CA (SA)

Suretyship Protection

...continued from page 7

What are the benefits of a Suretyship Protection Policy?

The Importance of a Suretyship Protection Agreement

1. Protect the surety's estate, family and loved ones; 2. Provides capital cash injection into the business entity; 3. Outstanding loans owed to the bank are settled in full; 4. The bank is protected (as it may take a security cession of the policy); 5. The outstanding loan is settled by the business entity and thus the value of the business entity is immediately increased; 6. Attractive looking financial statements; 7. Surplus cash can be retained by the business entity (e.g. if a policy pays R10 million and the loan owing is only R7 million, it could result in the fastest R3 million that business has ever made); and 8. Surplus cash can be utilized for other needs (e.g.: settle loan accounts owed to shareholders).

It is imperative that the business entity (principal debtor) and the person who has stood surety (surety) enter into a formalised and binding agreement. The importance of such an agreement is that it will compel the business entity to utilise the policy proceeds to settle the loan, and as a result of such action, the estate of the deceased is protected. Further, the said agreement may also direct what the business must do with surplus cash i.e. utilise it to settle any outstanding shareholder loan accounts.

If you have signed surety, then you should possibly consider a Surety Protection Policy in order to ensure that your estate is not left wanting!

Contact an NFB Private Wealth Manager on 043 735 2000 or info@nfbel.co.za for more information.

A Strange World

...continued from page 15

The implementation Now that realistic expectations have been reestablished, it is important that the investor revisit their investment strategy. To do this, the following framework can be used: 1. Set your financial goals 2. Calculate the required rate of return to achieve these goals 3. Examine the asset allocation that would be required to reach this rate of return 4. Assess risk attached to this asset allocation 5. Adopt the investment strategy or adjust your financial goals if the risk attached to the asset allocation isn't commensurate with your personal risk profile

Conclusion With the myriad range of products and funds available in the market that need to be thoroughly

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assessed and blended to give you the perfect mix required to achieve your financial goals, it can be a daunting task out there on your own. We would recommend consulting and using a qualified NFB financial advisor who can give you the independent, broad-spectrum advice that will help you come to an informed decision that will enable you to have the quality of life for which you have worked so hard. The perfect reaction to this opinion, is not to rush out and cancel all your investments and start again, it is the careful assessment, preferably with an advisor who you feel comfortable with, of every product, cash flow, and portfolio as well as life policies you have. Quite often, institutions can, and will, accommodate simple changes to the product or portfolio and these can make an incredibly positive change to your investment outcome.

SENSIBLE PROPERTY

LISTED PROPERTY

AT A GLANCE

The upward trend is clear. By Bryce Wild, Financial Advisor - NFB East London

During the past five years, listed property has been South Africa's best performing asset class, with annualised returns outperforming those of equities, cash and bonds. However, as has been the topic of much discussion over the past few months, South African listed property prices have recently come under pressure with many investors asking the question â&#x20AC;&#x153;why the sudden drop in capital value?â&#x20AC;?

The main reason for this drop in capital value can be attributed to the global improvement in bond yields. Analysts have suggested that the global â&#x20AC;&#x153;search for yield" has resulted in a close correlation being formed between listed property and bonds, being the two main yield-bearing asset classes. The main difference between the two is that listed property provides capital growth and an escalating income, whereas bonds generally do not. As bond yields have moved upwards, both bond and property prices have come under pressure.

It is important for investors to keep in mind that property, as an asset class, can be volatile - this applies particularly to the capital component thereof. Capital growth cannot be expected to come in a predictable, straight line. This is illustrated in the graph below, where the returns for the period February 2008 to August 2013 are shown.

What is important to note, is that despite the recent drop off in property prices, the upward trend is clear. Despite some volatility along the way, investors have enjoyed outstanding capital growth while still enjoying yields of around 7% per annum.

SAPY Index - SA Listed Property 600 550

SAPY INDEX VALUE

500 450 400 SAPY

350

Linear (SAPY) 300 250 200

DATE

We are all aware that Ben Bernanke, the head of the US Federal reserve, has been looking to ease quantitative easing for quite some time. When the US government finally decides that their economy has recovered enough from the 2008 financial crisis to cease the purchasing of their government bonds, the demand for US bonds will decrease. This may well result in an increase in interest rates around the world which could, in turn, lead to further drops in the capital value of listed property.

However, as mentioned above, investors will still receive the yield portion of their returns. This is expected to continue escalating at approximately 5% per annum over the next few years and is likely to offset some of the losses in capital that may occur. It is expected that capital appreciation of listed property will continue the upward trend it has been following in the long term.

The South African listed property market presents numerous opportunities to investors. South African listed property companies, Redefine and Growthpoint, have both recently launched American depositary receipt (ADR) programmes, thereby making investing in South African listed property more accessible to the world. Foreign ownership of most of the large South African property counters is still below 20%, a position that many would like to rectify. The introduction of Real Estate Investment Trusts (REITS) has also made investing in listed property in South Africa more accessible, while also providing investors tax benefits in the form of their pass through tax status.

Investors would be wise to bear in mind that listed property is a long-term investment and shortterm fluctuations in the capital value of their investments are to be expected. This is but one of a few components that make up the returns offered by listed property. Over the long term, capital growth should trend upwards - analysts remain optimistic, and feel that over a 5-year investment horizon, listed property as an asset class can deliver total returns of 10 - 12% per annum.

The historic performance of the listed property market strongly supports its ability to withstand market drops. This was evident during the falls experienced during 2006 and 2008, where the fundamentals were in place and the income distributions were still growing as is the case today.

Contact an NFB Private Wealth Manager on 043 735 2000 or info@nfbel.co.za for more information on listed property and whether or not it is suitable for you.

Source: TradeCIS

sensible finance november13

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OUR CONTRIBUTION TO

MANDELA DAY NVest staff with all the Icebo Day Care Centre children & Pat from LAFN

Touching lives in our community‚ you too can make a difference! By Robyne Moore, NVest Financial Holdings, after th

e pain

ting jo

T

b is alm

ost do

ne

he campaign message for Mandela Day is “Nelson Mandela has fought for social justice for 67 years. We're asking you to start with 67 minutes”.

The first Mandela Day was held in 2010 and has since been celebrated every year on Madiba's birthday, the 18th July. This is an international celebration in honour of Nelson Mandela with the objective being to inspire all people “to be of service to one's fellow human”. By taking action in some way, no matter how small, we are able to help others and thereby transform the world to make it a better place.

With this in mind, and as part of our corporate social responsibility, NFB took the decision this year to be “hands on”. NVest Financial Holdings (of which NFB is a subsidiary) has nominated the Loaves and Fishes Network (LAFN) as its charity. LAFN is an award-winning, East London based NGO that offers support to impoverished community initiated crèches (currently supporting 29 crèches) through its three year Early Childhood Development practitioner training programme, by feeding the children who attend the crèches with two nutritious daily meals and by trying to find funding to improve, refurbish and renovate general crèche infrastructure. Through this charity, we chose Icebo, a township crèche and one of the aforementioned 29 crèches supported by LAFN, as the beneficiary for this year's Mandela Day. Funds were raised through monetary donations, company civvies days and cake sales.

Barry Moldenhauer, from Mdantsane Build It, very kindly donated 40 litres of paint, turpentine and brushes. With the funds raised we were able to buy much needed educational equipment such as play dough, books, puzzles, colouring-in books, crayons, scissors etc. Fresh oranges and apples were taken out, as well as some chips and sweets. For fun we added balls, skipping ropes and motorbikes, as the playground only consisted of a two-swing set and a make-shift sandpit.

The Icebo Day Care Centre is a shack in a rural

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area and the children who attend are between the ages of 3 and 6. On any one day there can be as few as twelve children and as many as thirty. Unfortunately, as transport is a scarce resource and the children sometimes have very far to walk, some days they do not attend crèche at all which means that, besides missing out on vital cognitive, physical and emotional stimulation provided by the dedicated and trained childcare practitioners, it also means that those children will probably not receive a nutritious meal that day.

On the day, a large group of staff from across the NVest companies, was taken out to Icebo by Pat Mtintsilana, General Manager of the LAFN, to participate in planting some trees and seedlings in the crèche's veggie garden. Some staff played with the children, painted with them and at one stage there was an informal “soccer” match being played.

Unfortunately, we were unable to paint the exterior of the crèche as the weather did not play its part, but a week later a small group of enthusiastic staff again ventured out. By lunchtime we were all done and dusted and Icebo Day Care Centre now has a fresh coat of paint!

We cannot change the world overnight and it is not possible to help everyone, but it is my belief that every individual has the ability to impact the life of another. And as human beings, I believe it is our duty to do as much as we can, where and when we can – especially for those who cannot help themselves.

So when July 2014 rolls around, ask yourself....WHAT CAN I DO TO MAKE A DIFFERENCE ON MANDELA DAY?

ce & Bry lman ole for erse h H a rl Cha digging a tree n Wild ana Melany Bo the b plantin tes & Robyne g the lit tle pea Moore ch tree

SENSIBLE PROCESS

ADMINISTRATION OF AN ESTATE AND OBSTACLES IN THE PROCESS Possible obstacles which may be encountered.

By Debi Godwin, Director Independent Executor & Trust

I

n South Africa a deceased estate is administered as prescribed by the Administration of Estates Act, and distributed in accordance with a valid registered will or the Intestate Succession Act, or a combination of both Acts.

Numerous other Acts and regulations pertaining to, among others, income tax (including VAT and CGT), estate duty and donations tax, and maintenance of a surviving spouse, may also apply.

When a person with assets dies, his/her estate must be registered at the office of the Master of the High Court as soon as possible. Certain documents, as well as a will, if any, must be submitted. In the case of estates, including joint estates, with a gross value of less than R125 000 the Master may waive the official appointment of an executor to carry out the prescribed administration process. In all other cases the Master will appoint an executor.

The official administration process to be followed by the executor will then commence.

One of the executor's first duties is to advertise to creditors, obtain details of estate assets, have these valued if necessary, and to collect certain assets.

Known and reported liabilities must be evaluated and attention should be given to income tax, among others. The executor must submit a liquidation and distribution account to the Master

within six months, or request a deferment. This estate account shows all assets and liabilities, distribution to heirs, and details of assets outside the estate payable directly to beneficiaries.

The Master examines the estate account and then issues a questionnaire. Once approved, the account must be advertised and be open to inspection for 21 days at the Master's office or, in most cases, at the nearest magistrate's office. If written objections are received, they must be dealt with in the prescribed manner. If there are no objections, or after dealing with the objections, the executor must pay creditors and heirs and transfer others assets to the heirs within two months.

In most cases this should not be a complex process and it should be completed within a reasonable period of time. However, there are many obstacles that could delay the process for months and in some cases even bring it to a complete standstill. Among the most common obstacles are poor service by government and private institutions, incorrect and impracticable wills, cash shortfalls, disputes and discord among heirs, a lack of information, the disarray of the deceased's tax and other matters, lawsuits before and after death, and in the event of unnatural death, legal inquests as required for the payment of policies in certain cases.

At Independent Executor & Trust we are committed to personalized service and individual attention. With combined experience of 65 years, we specialize in the Drafting of Wills, Administration of Estates & Testamentary Trusts.

49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210 Telephone: (043) 735 4633 Fax: 086 693 3356 / (043) 735 3942 | e-mail: info@iet.co.za

sensible finance november13

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SENSIBLE Q&A

Travis McClure

“Sensible Finance - Questions and Answers” is an advice column that will allow our readers the opportunity to write to a professional and experienced financial advisor for advice regarding investments, personal finance, life and/or risk cover. Travis McClure will be answering any questions that you may have.

Q:

A common questioned that gets asked in my financial planning meetings with clients is “How much do I need in order to retire comfortably?

What is the magic number that I should be trying to achieve and how do I get there?”

A: Each person's financial situation is different and we need to take into account each individual's needs and requirements when it comes to retirement. There are many assumptions and variables that can change along the way which makes it difficult to be exact. What we as Financial Advisors try to do is give the client some idea of what the future may look like if they continue with their current strategy or what the consequences would be of changing strategy. A conservative view on growth and inflation is taken to ensure that there are no major surprises in the actual outcomes later in life. We prefer to “paint” a worst case scenario picture than a rosy outlook that might disappoint.

So the general rule of thumb is that a client will need 15 to 20 times his final annual salary in order to ensure that he has sufficient capital to provide a sustainable income. How do we get to this number? Let's assume that the final salary is R30 000 pm or R360 000 p.a. This, times 15 would give us a number of R5 400 000. This amount invested with a withdrawal rate of 5% would give you a monthly income of R22 500 pm which is 75% of the final salary. The 5% withdrawal rate should ensure that it is sustainable and that there is some growth in the capital and income over time to hedge against inflation.

Inflation is the enemy when it comes to retirement and it is so important to try and ensure that one is able to maintain the purchasing power of your money. In order to ensure that you have enough, it is not only about how much you invest, but also how the investment performs. Exposure to growth assets such as equities and properties is vital, as these assets have proven in the long run to

give above average returns over inflation.

A 30 year old earning R30 000 pm today will be looking at a final salary of R320 297 pm at age 65 taking into account inflation at 7%. How does he or she make sure that they get to the capital required of R57 653 460 based on our sums above? If one just relies on a simple 10% of salary contribution to a retirement fund you are going to fall short of your goal as illustrated in the graph below.

% of salary contributed to Pension/RA

Growth Rate

10% 10% 15% 15%

Inflation + 3% Inflation + 8% Inflation + 3% Inflation + 8%

% of final salary achieved at retirement age 65 20% 54% 30% 80%

As one gets older and delays the retirement process the higher the percentage of salary required to invest becomes. The younger one starts to save the better. To achieve the higher growth rates one generally has to take on risk and invest in growth assets such as property and equities. One cannot rely on these growth rates as a given and therefore it is important that one invests as much as possible whilst still maintaining a balanced lifestyle.

So in summary, start young, invest in growth assets, get good advice and assess your retirement plan regularly.

For a needs analysis on your retirement portfolio feel free to contact one of our Private Wealth Managers on 043 – 735 2000 or info@nfbel.co.za

Please address all Questions to: Travis McClure, NFB Sensible Finance Q&A, Box 8132, Nahoon, 5210 or email: info@nfbel.co.za

sensible finance november13

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SENSIBLE INVESTMENT

Get your Dividend from Vividend

By Rob Mc Intyre, CA (SA), Director and Stockbroker - NVest Securities

V

ividend Income Fund Limited is a Real Estate Investment Trust (REIT) that is listed on the JSE. The units trade at R4.90 each (at 3 October), giving it a market capitalisation of R1.3bn. This places the fund at the smaller end of the listed property sector.

The fund has been listed for a few years and had in May undertaken a capital raise at R5.40 per unit, thereby increasing the market capitalisation by about 50%. The proceeds were used to fund significant acquisitions.

We have a forecast distribution of 50 cents per unit, which places the units at a yield of just over 10%. Distributions from REITs are taxed in the hands of individual taxpayers as interest. There is no tax on such distributions where the units are held in a personal share portfolio under a retirement fund structure (including a living annuity).

This yield places the fund near the top end of listed property in South Africa. By way of comparison, Growthpoint Properties (with a market capitalisation of R48bn has a forecast yield of 6.25%) and Redefine Properties (with a market capitalisation of R29bn) has a forecast yield of 7.25%. Given the size and benefits that this brings, there is a major difference between a fund like Vividend and these two property giants, but we believe that both offerings have a position in a well diversified portfolio.

We believe that Vividend's distribution is secure and over time should grow in line with the sector.

Given the size of the fund, track record to date and peer ratings, we would argue that a forecast yield of 8.5% is more appropriate, which would imply a fair value of around R5.90 per unit, which is 20% above the current trading price.

There is strong selling in the market of Vividend

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units, which has pushed the unit price down from the R5.40 rights issue price. We believe that this selling is coming from one or two asset managers who are in the position of having to reduce their holding for reasons other than fund specific reasons. This has created increased liquidity and given other investors (such as ourselves on behalf of clients) the opportunity to acquire a meaningful exposure.

Management have shown that they are circumspect when acquiring properties and we were encouraged that they walked away from a number of announced deals, where based on a full due diligence, their performance metrics were not met. This suggests that management are not dealdriven for the sole purpose of bulking up the fund.

Vividend plans to release its results for the year to August 2013 on 23 October and we should have a clearer picture of the trading and prospects at that stage.

Most of the property portfolio is in the Western Cape and Gauteng and the fund is managed out of Cape Town. A significant property asset of the fund is Access Park in Cape Town. The fund has recently taken control of this asset and plans to further develop this outlet facility into a premium value proposition.

We believe that Vividend (much like Redefine International was at the time that we were buying for our managed book) is a mispriced asset that offers a rerating potential. It also offers a generous yield while we wait for this unlocking of value to take place. For this reason, we are buying Vividend with a long term view for both general equity portfolios and into our managed income mandates, with an allocation around the 5% level.

The Eastern Cape's first home-grown

STOCK BROKERAGE NVest Securities (Pty) Ltd NFB House, 42 Beach Road, Nahoon East London 5241 PO Box 8041, Nahoon 5210 Tel: (043) 735-1270, Fax: (043) 735-1337 Email: info@nvestel.co.za

www.nvestsecurities.co.za NVest Securities is an Authorised Financial Services Provider

NFB have a STRONG, REPUTABLE TEAM OF ADVISORS with a WEALTH OF EXPERIENCE between them: Anthony Godwin (RFP™, MIFM) - Managing Director and Private Wealth Manager, 25 years experience; Gavin Ramsay (BCom, MIFM) - Executive Director and Private Wealth Manager, 20 years experience; Andrew Kent (MIFM) - Executive Director and Share Portfolio Manager, 20 years experience; Walter Lowrie - Private Wealth Manager, 28 years experience; Robert Masters (AFP™, MIFM) - Private Wealth Manager, 28 years experience; Bryan Lones (AFP™, MIFM) - Private Wealth Manager, 22 years experience; Travis McClure (BCom, CFP®) - Private Wealth Manager, 15 years experience; Marc Schroeder (BCom Hons(Ecos), CFP®) Private Wealth Manager, 9 years experience;

Gordon Brown (CFP®) - Regional Manager – PE, 7 years experience; Mikayla Collins (BCom (Hons), CFP®) - Private Wealth Manager, 2 years experience; Glen Wattrus (B.Juris LL.B CFP®) – Private Wealth Manager, 16 years experience; Julie McDonald (BCom, CFP®) – Financial Paraplanner, 3 years experience; Bryce Wild (B.Com (Hons)) – Financial Paraplanner, 1 yr experience Leona Trollip (RFP™) - Employee Benefits Divisional Manager and Advisor, 37 years experience; Leonie Schoeman (RFP™) - Healthcare Divisional Manager and Advisor, 16 years experience; Nonnie Canham (LLB) – Healthcare Advisor, 2 years experience.

Phillip Bartlett (BA LLB, CFP®) - Private Wealth Manager, 11 years experience; NFB has a separate specialist Short Term Insurance Division, as well as now offering specialist group companies in the fields of stock broking, wills and the administration of deceased estates.