contents Opinion
6 How the world of finance evolves 8 Test of mettle for battling sector
The week in brief 10 News in numbers 12 Lay-by for that epic adventure 14 Wealth tax: Good idea or not?
Marketplace Fund Focus: In it for the long haul House View: ADvTECH, PPC Killer Trade: Discovery, Hyprop Investments Global Game-Changers: Cryptocurrencies: Speculative instrument or game-changer? 20 Simon Says: Famous Brands, Purple Group, City Lodge, Woolworths, Anchor Capital, Steinhoff, Shoprite, Sasfin, Imperial, Sea Harvest, Adapt IT 22 Invest DIY: Once you’ve found that brilliant share, don’t sell 23 Investment: How to determine your risk tolerance 24 ETFs: A truly fantastic present for the kids 25 Technical Analysis: Resources shares again in the spotlight 26 Tobacco Industry: Not going up in smoke just yet 27 Gold: Why the yellow metal is still an investor favourite 28 Directors & Dividends: Dealings & Payouts 15 16 17 18
Instead, we are in recession. “You can’t blame this on external factors, like [US president Donald] Trump, or commodity prices. This is caused by internal dynamics. In a nutshell, the politics of this country has destroyed confidence in this country.” The result is a deeply concerning rise in the number of South Africans who live in poverty – more than half of us now have to survive on less than R992 a month, based on the recently released 2015 data from Statistics SA. Given how the economic climate has deteriorated and unemployment increased since then, the poverty numbers are likely even higher today. (Also see page 36.) With the balance sheets of government and households under immense pressure, Lings argues that SA’s economic kick-start can only happen in one way – restore business confidence by providing policy certainty to Corporate SA, which sits on huge piles of cash that can be invested, should the right economic climate be created. You’d think the politicians would have caught on by now. Setting out her vision for SA in a recent speech at the Gordon Institute of Business Science, Nkosazana Dlamini-Zuma bemoaned the fact that Corporate SA was “cash-flush”, yet reluctant to invest domestically while government runs at a deficit, and said it can no longer be “business as usual”. Yet her proposals were politics as usual – establish sector-level advisory committees to facilitate discussions between stakeholders; transform land ownership; implement strategies for radical economic transformation; break up the “monopolies”; open up the economy for new black-owned businesses. Creating policy certainty and an environment in which business can flourish? Not mentioned once.
Cover 30 Exchange-Traded Funds: The rise of the ETF
In depth 36 Youth Unemployment: Jobs: Time to focus on the millions
On the money 38 Entrepreneur: Getting South Africa’s finest wines on the road 40 Motoring: Classic cars: Old bloke’s hobby or genuine investment? 42 Technology: The rise of SIM-swap fraud 44 Management: How to emotionally detach yourself from your business 45 Crossword and quiz 46 Piker
Matter of fact In our cover story of the 24 August-6 September issue, Estienne de Klerk, managing director of Growthpoint Properties, was incorrectly referred to as Estienne le Roux. Stephan le Roux, Growthpoint’s divisional director: retail portfolio, cited information about shopping centres in the US, not De Klerk. Lastly, the full name of the largest owner of office space in Romania in which Growthpoint recently acquired a 26.9% stake is Globalworth Real Estate Investments. We regret the errors. ■
EDITORIAL & SALES Editor Jana Marais Deputy Editor Anneli Groenewald Journalists and Contributors Simon Brown, Lucas de Lange, Johan Fourie, Moxima Gama, Lloyd Gedye, Natalie Greve, Mariam Isa, Marcia Klein, Niel Joubert, Schalk Louw, Kaizer Nyatsumba, Amanda Visser, Glenda Williams Sub-Editors Stefanie Muller, Katrien Smit Editorial Assistant Thato Marolen Layout Artists Beku Mbotoli, Tshebetso Ditabo Senior Sales Executives Paul Goddard 082 650 9231 / paul@fivetwelve.co.za Marita Schoonbee 082 882 7375 / marita.schoonbee@ newmediapub.co.za Sales Executive Tanya Finch 082 961 9429 / tanya@fivetwelve.co.za Publisher Sandra Ladas sandra.ladas@newmediapub.co.za General Manager Dev Naidoo Production Angela Silver angela. silver@newmediapub.co.za, Rae Morrison rae.morrison@newmediapub.co.za Published on behalf of Media24 by New Media Publishing (Pty) Ltd Johannesburg Office: Ground floor, Media Park, 69 Kingsway Avenue, Auckland Park, 2092 Postal Address: PO Box 784698, Sandton, Johannesburg, 2146 Tel: +27 (0)11 713 9601 Head Office: New Media House, 19 Bree Street, Cape Town, 8001 Postal Address: PO Box 440, Green Point, Cape Town, 8051 Tel: +27 (0)21 417 1111 Fax: +27 (0)21 417 1112 Email: newmedia@newmediapub.co.za Managing Director: Aileen Lamb Chief Executive Officer: Bridget McCarney Executive Director: John Psillos Non Executive Director: Irna van Zyl Printed by Paarlmedia and Distributed by On The Dot Website: http://www.fin24.com/finweek Overseas Subscribers: +27 21 405 1905/7
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opinion By Johan Fourie
HUMAN BEHAVIOUR
How the world of finance evolves We are biological beings, and not as rational as we might think. What does this mean for our interaction with markets?
w
hy do stock markets tend to be depressed during winter? Why do investors with too little emotional response (or too much) tend to be less profitable than those with just the right amount of emotion? Why do traders tend to make more money on days when their levels of testosterone are higher than average? In a fascinating new book, Andrew Lo builds on the corpus of behavioural science research to outline a new theory of financial markets. His basic point: Homo economicus is dead. The hyper-rational human who always optimised every decision, most famously portrayed in the Efficient Markets Hypothesis of Eugene Fama that has ruled the field of finance at least since the 1980s, does not exist. Lo’s new book, Adaptive Markets: Financial Evolution at the Speed of Thought, explicates his Adaptive Markets Hypothesis, first proposed in 2004 as a substitute for the Efficient Markets Hypothesis. In short, the Adaptive Markets Hypothesis accepts that humans are biological beings, and that our biology limits our ability to optimise every decision as the Efficient Markets Hypothesis predicts. Most importantly, though, our “irrationality” is not random. This means that we consistently make the same “mistakes”, something that behavioural scientists have known for quite some time. One of these mistakes, for example, is that we often link events together because they happen to occur close to one another. Lo explains: “We humans are not so much the ‘rational animal’ as we are the rationalizing animal. We interpret the world not in terms of objects and events, but in sequences of objects and events, preferably leading to some conclusion, as they do in a story.” Telling stories is one way we try to make sense of the world, even if those stories are sometimes false. We do this because, given the environments that we encountered, this was the most evolutionary successful behaviour. But that has consequences: If our environment change, our biological decision-making processes might not be equipped to deal with the new environment. In Lo’s words: “‘Rational’ responses by Homo sapiens to physical threats on the plains of the African savannah may not be effective in dealing with financial threats on the floor of the New York Stock Exchange.” Often the real world is not very different from the survival-of-the-fittest world our ancestors encountered on the African plains. Many times, humans do optimise their behaviour. This is why the Efficient Markets Hypothesis could hold for so long, treating “irrational” behaviour as random outliers that will be averaged out in the marketplace. But as Lo demonstrates, often humans (and by implication traders) behave “predictably irrational”, reacting to fear systematically different than to reward, for example,
Andrew Lo Professor of finance at the MIT Sloan School of Management
and opening opportunities for windfall profits on the financial markets. That’s why some famous investors, accounting for these predictably irrational heuristics, can be consistently successful. The good news is that we are not like other animals. We don’t have to wait for evolution to mould us to our environment through natural selection. We have the ability to learn and adjust through trial and error. High-frequency trading is a great example: speed is everything in financial markets, and automated trading programmes have replaced specialist human traders who are just too slow to recognise and respond to the predictably irrational human errors. But even this is changing, says Lo: “At first, these high-frequency traders made windfall profits, since human specialists were sluggish and inefficient in comparison. However, there ultimately came a point where highfrequency traders were mainly competing with one another. To succeed in this financial arms race, highfrequency trading firms had to invest in faster and more expensive hardware.” At the same time, however, these firms were scouring the market for any trace of “juice” that might be left. In a very short amount of time, high-frequency trading was pushing against its natural evolutionary limits. It had unexpectedly become a mature industry, with low margins on trades and low overall profits. High-frequency trading is now on the decline, as more and more exchanges start implementing “no high-frequency trading zones”. The environment is changing, and high-frequency traders who don’t adapt will perish. The book explains why the Efficient Markets Hypothesis was so appealing, why earlier attempts to use evolutionary thinking in finance never caught on, and what this new theory might say about the future of finance. It also has a cautionary word about how we train the next generation of finance gurus: “For the mathematically trained economist, it’s sometimes difficult to think in evolutionary or ecological terms, but sooner or later, this way of thinking will be domesticated (another biological metaphor), and will become another standard tool for economists to use, just as molecular biologists use it today.” Just like the finance industry employed mathematically inclined engineers and physicists in the past few decades, perhaps biology will be the training of choice for the next generation of investment firms. Perhaps. What we do know is that the environment is changing, and that traders will have to adapt too if they are to survive, and thrive. As Lo explains: “An evolutionarily successful adaptation doesn’t have to be the best; it only needs to be better than the rest.” Let the games begin! ■ editorial@finweek.co.za
Images: www.news.mit.edu
The Adaptive Markets Hypothesis accepts that humans are biological beings, and that our biology limits our ability to optimise every decision as the Efficient Markets Hypothesis predicts.
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Johan Fourie is associate professor in economics at Stellenbosch University.
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opinion By Kaizer Nyatsumba
METALS AND ENGINEERING INDUSTRY
Test of mettle for battling sector The struggling metals and engineering sector is facing strong headwinds, ranging from cheap imports to a weak local demand for products. Various stakeholders are desperate to find solutions to these issues.
Images: Supplied
Getty Images/Waldo Swiegers/Bloomberg
l
ater this month, stakeholders in the metals and engineering sector will converge for the annual Southern African Metals and Engineering Indaba, with a single-minded focus on finding workable solutions to the various challenges facing the sector, and to devise concrete strategies that would ensure the sector’s growth and long-term sustainability. The challenges facing the metals and engineering sector are well-documented. These include a flood of cheap imports, unfair competition from countries such as China where manufacturing is highly subsidised, rising production and labour costs, as well as stagnant economic growth. The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has long been vocal about the influx of cheap imports. Seifsa has done so because, like many others in the sector, its members are deeply concerned about job losses. The sector has lost a total of 25 000 jobs in the three years between July 2014 and June this year. High levels of unemployment and poverty provide a fertile ground for social, economic and political instability. Job losses at that scale move SA away from the goals and objectives of the National Development Plan (NDP), which proposes the creation of 11m jobs by 2030 through, among others, the promotion of employment in labour-absorbing industries. Sadly, a few years after the adoption of the NDP the federation now knows that this ambition is not supported by reality. Seifsa has seen a number of its member companies either scale down operations or shut down completely. The sector has been on the receiving end of negative sentiment about the local economy because of, among others, falling GDP and contraction in the secondary sector in the first quarter of this year. According to the Reserve Bank’s June 2017 Quarterly Bulletin, manufacturing production contracted for the third successive quarter in the first three months of this year. This was mainly due to weak domestic demand and low business confidence. The metals and engineering sector has contracted each successive year since 2013, with a cumulative contraction of 6% between 2013 and 2016. Along with low production levels and weak demand, the unfavourable conditions in the local economy have led to poor new investments in the sector. Therefore, it goes without saying that the fortunes of the metals and engineering sector are
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inextricably linked to the health of the local economy, since approximately 57% of the sector’s output is consumed in the domestic market. For that reason, Seifsa is deeply worried about what is happening in the economy. The continued erosion of business confidence concerns its members, like many others, because it has an effect on the investment decisions of their customers in the mining, automotive, construction and petrochemicals sectors. International competitiveness is also of concern. The fortunes of the metals While the bulk of the sectors’ output is consumed in and engineering sector are the domestic market, a sizable portion of its output inextricably linked to the health of is still exported. For that reason, the recent lacklustre the local economy, since approximately performance of exports is a worrying trend. Between 2015 and 2016, exports in the metals and engineering sector decreased by 12.4% in nominal terms and 17% in real terms. This compares negatively to the 2.1% contraction between 2014 and 2015. of the sector’s output is consumed In 2016, the bulk of metals and engineering exports in the domestic market. were headed for the rest of Africa (37.3%), followed by Asia (27.8%) and Europe (20.9%). If SA is serious about enhancing export competitiveness in this and other sectors, it has no choice but to pay close attention to developments in these key markets. This year’s Indaba takes place a few weeks after the metals and engineering sector sealed a three-year wage agreement with unions. The settlement was a compromise deal for all the parties involved and none of the parties walked away with what it had wished for. All those who were involved in these crucial negotiations are satisfied that they did what was best for the industry under the current circumstances. The outcome of the negotiations encapsulates the positive spirit within the sector. Employers and labour may have their differences, but there comes a A worker watches as a crane lifts time when they have to put those differences steel beams at ArcelorMittal’s plant in aside for the sake of the survival of the sector. It eMalahleni, Mpumalanga. is through that kind of maturity that players in the sector will overcome their challenges. For the first time in a decade, all stakeholders were able to reach a settlement agreement without any industrial action. This is remarkable when one considers that the sector experienced a week-long strike in 2007, a twoweek strike in 2011 and a month-long strike in 2014. ■ editorial@finweek.co.za
57%
Kaizer Nyatsumba is the CEO of Seifsa. For more information on the Indaba, visit https://meindaba.seifsa.co.za/.
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>> TREND: Save now, travel later p.12 >> FACE-OFF: The pros and cons of a wealth tax p.14
“For us, the most important thing is you can’t take workers’ money and spend it on adventures that tend to not get a return on investment.” − Dennis George, general secretary of the Federation of Unions of SA (Fedusa), told Business Day that the federation would “never” support a motion if they were aware that it would result in the wasting of workers’ investments. George was commenting after finance minister Malusi Gigaba told Cosatu’s central executive committee that he cannot take the option off the table to use money from the Public Investment Corporation (PIC) to bail out struggling state-owned enterprises (SOEs) such as South African Airways. The PIC invests on behalf of the Government Employees’ Pension Fund and other social funds such as the Unemployment Insurance Fund. “The reason SOEs are in the state they are in is because they do not have good corporate governance and boards are corrupt,” George told the newspaper.
“THE CONTEXT MATTERS. WHY ALL OF THIS? TWO BROTHERS GETTING NOISY IN THE SPACE OF FOUR DAYS.” − Former finance minister Pravin Gordhan in response to an open letter by President Jacob Zuma’s son Duduzane Zuma on 28 August. In the letter, Zuma Jr admonishes Gordhan and accuses him of using state bodies, such as the Financial Intelligence Centre and the South African Reserve Bank, to try to destroy him and his business colleagues, TimesLive reported. Zuma Jr said in the letter that “all” his bank accounts have been closed and that he will be selling his shares in Gupta-linked companies. Days earlier, Zuma’s elder son‚ Edward, had disrupted Gordhan’s speech at the Gandhi Memorial Lecture in Pietermaritzburg on 25 August, accusing him of “selling” the country.
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“THE PAY PLAN IS NOT ALIGNED WITH SHAREHOLDERS’ INTERESTS, THE DISCLOSURE IS POOR, AND THE PERFORMANCE TARGETS APPEAR TO BE VERY EASY TO ACHIEVE. ON TOP OF THAT, THEY ARE NOW ALSO PROPOSING TO SHORTEN THE VESTING PERIODS FOR THE LONGTERM INCENTIVES.”
− Allan Gray investment analyst Pieter Koornhof comments to Bloomberg on the passing of Naspers’s* controversial remuneration policy at the recent annual general meeting. The policy, which critics say unfairly rewards Naspers executives for the performance of Chinese internet giant Tencent, in which Naspers owns a 34% stake but over which it exercises no management control, has revealed mass discontent among shareholders, some of whom are among the country’s largest fund managers. Calculations by Moneyweb found that about 66% of N shareholders voted against the company’s executive remuneration policy, while almost 74% voted against the resolution to give directors control of unissued shares. However, as a result of the company’s dual-class share structure and the fact that A shareholders voted in favour of the pay structure, it was passed. *finweek is a publication of Media24, a subsidiary of Naspers.
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Gallo/Getty Images
in brief
in brief DOUBLE TAKE
THE GOOD
BY RICO
The Western Cape government has received the first tranche of money committed to it by government to rebuild after recent devastating fires, and a prolonged drought. This after the National Disaster Management Centre (NDMC) declared the province a disaster area and following requests for funding from various municipalities. Cooperative governance and traditional affairs minister Des van Rooyen said the first tranche of R34.86m was transferred on 21 August to the municipalities of Cape Town, Bitou and Theewaterskloof. A second tranche of R40m, to be spent on livestock feed, would have been sent to the province on 31 August.
THE BAD US President Donald Trump has said “all options are on the table” after North Korea launched a missile designed to carry a nuclear payload over Japan on 29 August, and vowed the US and Tokyo were committed to increasing pressure on Pyongyang, The Guardian reported. The firing of the missile is considered one of the most provocative moves yet by the secretive Asian state. Just a few weeks earlier, North Korean leader Kim Jong-un had threatened to target the US Pacific territory of Guam with similar weaponry. The Japanese prime minister, Shinzo Abe, had earlier denounced the launch as an “unprecedented and grave threat” to the country’s security, it reported.
THE UGLY
THE JOBLESS MASSES
43.3%
$100bn
Fewer than half of South Africans of working age – 43.3% to be exact – are employed, the 2017 South Africa Survey, published by the Institute of Race Relations, has revealed. Interrogating data from Statistics South Africa, the study showed that the number of unemployed people has increased from 3.7m in 1994 to 9.3m in 2017. Of the 9.3m unemployed, 6m are under the age of 35. The figure is lowest for black South Africans, who demonstrate a labour market absorption rate of just 40.4%. Young people also show far higher rates of unemployment than older people. (Also see page 36.)
Early estimates have put the cost of the catastrophic floods that hit Texas after Hurricane Harvey buffeted the east coast of the US at $100bn. Thousands of homes have been flooded, forcing residents to seek emergency shelter, with US authorities estimating that 30 000 people would have to leave their homes. By 28 August, nine were confirmed dead as a result of the weather event, The Guardian reported. US President Donald Trump was quoted as saying that the cost of recovering from Harvey – the first natural disaster during his presidency – would be “very expensive” but pledged that “the federal government stands ready, willing and able to support that effort”.
VIEWER RECORD
More than half of South Africans live in poverty, with poverty rates on the increase after a general decline between 2006 and 2011. In 2015, 55.5% lived on less than R992 per person per month in 2015 prices, an increase from 53.2% in 2011, the latest data from StatsSA shows. This means over 30.4m South Africans were living in poverty in 2015. StatsSA said poverty had been exacerbated by low and weak economic growth, continuing high unemployment, lower commodity prices, higher consumer prices, lower investment and greater household dependency on credit.
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STORM WARNING
WORLD TRADE GROWS
12.1m
4.6%
The season 7 finale of the hit TV series Game of Thrones smashed a series record for ratings, attracting 12.1m viewers on its 28 August debut in the US, according to ratings agency Nielsen. The Washington Post reported that the total viewership was up 36% over the previous year’s finale, which had 8.9m viewers, and it was 19% better than the seventh-season premiere in July, which had 10.1m viewers. It added that each episode of the current season was averaging more than 30m viewers across platforms, which is nearly 8m more viewers than at the end of the previous season.
World trade grew by 4.6% year-on-year in June, recording an annual average growth rate of 4.1% in the first six months of 2017, according to CPB data. This compares with average growth of only 1.4% in 2016, 1.9% in 2015 and 2.7% in 2014, says Stanlib chief economist Kevin Lings. The improvement in world trade, which has become much more evident over the past eight months, has been relatively broad-based with strong export volume growth out of Central and Eastern Europe (+9.4%), Japan (+6.1%), Emerging Asia (+4.9%) and the US (+4.2%), Lings said in a note.
finweekmagazine
finweek 7 September 2017
11
trend
in brief By Jon Pienaar
Lay-by for that epic adventure Everyone loves to travel. But an experience of a week or two can translate into months, or years, of credit card debt. There is, however, another way to head offshore. Andrew Katzwinkel’s FOMO Travel offers a “save now, travel later” option that kills credit and the regret that comes from paying off debt.
p
eople travel for different reasons. Some believe it “broadens the mind”. Others want to get away from it all. But the fly-now-pay-later approach can turn the experience sour, says FOMO Travel founder, Andrew Katzwinkel. The tourism entrepreneur knows all about travel debt – it is the reason he’s pioneered a save-now-andtravel-later solution. “I had the personal pain point,” Katzwinkel says. “I couldn’t afford a holiday, so I put it on credit. I loved the holiday, but returned under a dark cloud. With the salary I was getting, it took over a year and a half to pay back the debt. I was paying hectic interest and had to say ‘no’ to a lot of great experiences.” Katzwinkel adds that he spent a long time kicking himself for not saving for the trip ahead of time. FOMO stands for ‘fear of missing out’, an emotion that many people who’ve had travel debt – like Katzwinkel – can relate to. He admits that he finds it difficult to save. “There is so much I like to spend my money on.” After researching the travel market, Katzwinkel came up with the idea of a service that encourages saving and rewards the saving with travel. Users sign up to FOMO Travel and enter into a payment plan before embarking on a desired journey. It is basically a travel lay-by system. “Travel must be paid for upfront,” Katzwinkel says, and points to the problem with credit. “Why should you start paying interest on something before you even go on your travels? Sometimes more than nine months before?” Tourism and travel is “one of the world’s largest industries”, according to global statistics portal Statista, which calculates that the industry contributed over $7.6tr to the global economy in 2016. “The market is huge – from 18-year-olds to pensioners. Although 18- to 24-year-olds
can’t always travel on credit, it’s great for them to go abroad. It exposes youth to different cultures and is an important development phase for young individuals,” the entrepreneur adds. “A FOMO Travel customer commits to paying a certain amount on a monthly basis. As the instalments are paid in, the money is put in an escrow account, which is secure and audited. You lock in the holiday today, and commit to the payments over a period,” he says. Katzwinkel adds that FOMO Travel basically helps travellers create an advance payment plan for a debt-free holiday. When payment has been made in full, FOMO Travel pays the supplier and issues documentation. He understands that sometimes life gets in the way, so FOMO has lenient cancellation terms. “Unfortunately the deposit is usually non-refundable, as we have to pay that over to the supplier in order to lock in the accommodation. But depending on advance notice, one can cancel or change up to 12 weeks prior to departure.” FOMO Travel was launched in November 2016, after a year of research and establishing relationships with affiliates in the industry, such as hotel groups, tour groups and other travel agents. The response, Katzwinkel says, was “overwhelming” and the company has had to scale fast. In March, FOMO joined the Singer Group, forming a partnership with Embassy Travel and Amazing Holidays. Through this partnership, Katzwinkel says that FOMO can offer worldclass service at competitive prices. Katzwinkel says that 12 000 people have already signed up to the service and FOMO Travel processed 100 bookings in the first six months of business. (A booking could be a family or a group.) In a market burdened with debt, FOMO Travel, a service that teaches people to save for luxuries, is just the ticket. ■ editorial@finweek.co.za
Images: Supplied
FOMO Travel basically helps travellers create an advance payment plan for a debt-free holiday. When payment has been made in full, FOMO Travel pays the supplier and issues documentation.
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Andrew Katzwinkel Founder of FOMO Travel
The ‘FOMO’ in FOMO Travel stands for ‘fear of missing out’.
Katzwinkel says that
12 000 100
people have already signed up to the service and FOMO Travel processed
bookings in the first six months of business.
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face-off
in brief By Mariam Isa
Wealth tax: Good idea or not? Judge Dennis Davis, who heads South Africa’s committee on tax reform, said on 21 August that he supported a wealth tax as it was an important symbolic step to address inequality, even though it would raise a relatively small amount of revenue to plug the country’s widening budget deficit. He acknowledged that the controversy around corruption and state capture make this an awkward moment to take the step, but added that he could not allow “vast swathes of wealth to be immune to tax”. His remarks indicate that a wealth tax is inevitable, perhaps as soon as next year – but would it really help address inequality and poverty? When the committee called in April for written submissions on the possible introduction of a wealth tax, it said that the potential forms that would be considered included: a land tax; a national tax on the value of property (over and above municipal rates); and an annual wealth tax, which by definition elsewhere could be levied on cash, deposits, investments, and savings in insurance and pension plans. SA already has taxes levied on wealth – estate duty, transfer duty, and tax on donations. At the same time, those earning the highest incomes in the country were hit with a hefty personal income tax increase this year, and now pay about half of their income in tax.
Shutterstock
In favour The main argument in favour of a wealth tax – which is a tax on benefits derived solely from asset ownership – is that it is the “right thing to do” as SA is one of the most unequal countries in the world, due to the legacy of apartheid. According to this year’s inequality report from global charity Oxfam, the total net wealth of three billionaires in the country is equivalent to that held by the bottom 50% of the population, while the richest 1% holds 42% of the wealth. This is sobering as figures from Statistics SA released in August showed that one in every two South Africans live in poverty, defined as earning less than R1 000 a month. This works out to 30.4m people in 2015, up from 27.3m in 2011. Yet the value of the country’s household net worth – after debt – amounted to R9.8tr at the end of last year, which is more than twice as much as GDP and well above the R6.01tr held in 2010, according to figures from the Reserve Bank. There is growing evidence of a negative link between inequality and economic growth, although it is not clear that the one actually causes the other. Greater inequality stifles spending by lower-income groups, hampers some forms of investment, and fans social instability. Supporters of a wealth tax argue that if the proceeds were ring-fenced for a particular purpose, it would be more palatable to people who would have to pay it. ■
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There are only
7.4m taxpayers, who have already been squeezed so much that some analysts believe local taxes are becoming destructive to the country’s tax base, which pays for social grants supporting 17m South Africans.
The total net wealth of three billionaires in the country is equivalent to that held by the bottom 50% of the population, while the richest 1% holds 42% of the wealth.
Against There are many arguments against a wealth tax. First, its administration is complex and expensive, and will undoubtedly spur capital flight from the country, weakening the rand and fanning inflation – which hits the poor the hardest. There are only 7.4m taxpayers, who have already been squeezed so much that some analysts believe local taxes are becoming destructive to the country’s tax base, which pays for social grants supporting 17m South Africans. Eventually there could be a disincentive to become prosperous through saving and investment, and many more wealthy taxpayers who provide the bulk of tax revenues will leave the country. Global experience has shown that taxes on the value of property will hit pensioners and middle-class households hardest as they may not have the income to meet those requirements, given that the value of their homes would have climbed sharply over the years. This could lead to widespread sales of property, destabilising the market, or more borrowing, which would lead to higher levels of indebtedness. One interesting point to make is that according to market research group New World Wealth, at the end of 2016, more than half of SA’s dollar
millionaires were from previously disadvantaged backgrounds. Its figures also show that between 2007 and 2015 the number of white millionaires plunged by 42% while the number of previously disadvantaged millionaires soared by 179%. So the argument that most of the wealthiest people in SA benefitted from apartheid doesn’t really hold water. Ring-fencing the proceeds of a wealth tax are unlikely to convince everyone as so much of the government’s money is wasted through corruption and inefficiency – according to the Auditor General, there was a 50% increase in “irregular expenditure” in the financial year ended March 2016, mainly because of weak supply chain management. Lastly, a wealth tax will not address the real structural problems responsible for SA’s high rates of unemployment and poverty, and is likely to be seen as a populist ploy to help win votes for the governing ANC in the 2019 election. ■ editorial@finweek.co.za Mariam Isa is a freelance journalist who came to SA in 2000 as chief financial correspondent for Reuters news agency after working in the Middle East, the UK and Sweden, covering topics ranging from war to oil, as well as politics and economics. She joined Business Day as economics editor in 2007 and left in 2014 to write on a wider range of subjects for several publications in SA and in the UK.
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THIS WEEK:
market place
>> House View: ADvTECH, PPC p.16 >> Killer Trade: Discovery, Hyprop Investments p.17 >> Cryptocurrencies: Speculative instrument or game-changer? p.18 >> Simon Says: Famous Brands, Woolworths, Purple Group, City Lodge, Anchor Capital, Steinhoff, Sasfin, Sea Harvest, Shoprite, Imperial p.20 >> Invest DIY: Once you’ve found that brilliant share, don’t sell p. 22 >> Investment: How to determine your risk tolerance p. 23
FUND IN FOCUS: ALLAN GRAY EQUITY FUND
By Niel Joubert
In it for the long haul The fund aims to create long-term wealth for investors. Its goal is to outperform the average return of South African General Equity Funds over the long term, without taking on a greater risk of loss. FUND INFORMATION:
Benchmark:
Fund manager insights: South African General Equity Funds (excluding Allan Gray funds) Andrew Lapping, Duncan Artus, Jacques Plaut, Simon Raubenheimer and Ruan Stander South African – Equity – General 2.27%
Fund managers: Fund classification: Total expense ratio:
Fund size: R40.5bn Minimum lump sum/subsequent investment: R20 000/R500 Contact details:
0860 000 654 or info@allangray.co.za
TOP 10 EQUITY HOLDINGS AS AT 31 JULY 2017:
1
Sasol
7.6%
2
Naspers*
7.4%
3
British American Tobacco
6.2%
4
Standard Bank
6.1%
5
Old Mutual
5.9%
6
Remgro
3.3%
7
Investec
2.9%
8
Reinet
2.8%
9
Life Healthcare
2%
10
RMI Holdings
1.8%
TOTAL
46.0%
*finweek is a publication of Media24, a subsidiary of Naspers. PERFORMANCE (ANNUALISED AFTER FEES)
As at 31 July 2017: ■ Allan Gray Equity Fund 25
■ Benchmark 23.4%
20 16.5%
15 10 5
5.7% 2.7%
0 1 year
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Since inception in October 1998
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The Allan Gray Equity Fund is for investors who are looking to create long-term wealth by investing in shares. Historically, equities have been the best way to generate real returns, says Andrew Lapping, chief investment officer of Allan Gray. The fund’s returns are likely to fluctuate significantly over the short to medium term, but this should not concern long-term investors, says Lapping. According to him investors should also be comfortable with price volatility. “One of the most commonly applied definitions to risk in investing is that of equating risk to volatility and at Allan Gray, we define risk as the probability of a permanent loss of capital,” says Lapping. “We manage this risk by buying assets that we consider to be priced below their intrinsic value and sell them when we think they have reached their worth – regardless of popular opinion.” According to Lapping, sentiment towards South Africa generally, and the equity markets in particular, is sinking steadily lower. Economic growth has slowed with the end of the commodity boom and government policy uncertainty is discouraging both local and foreign investors. The local equity market has remained practically unchanged over the past three years, as earnings have generally undershot expectations. “But, for the first time in many years, we are beginning to find opportunities in certain domestic consumer businesses outside financial services,” says Lapping. With regard to the fund’s investment philosophy, he explains that “we spend our time valuing businesses”. “We then compare the price the market places on those businesses to what we think they are worth. We look to invest in the businesses that are undervalued by the market. The market can sometimes misprice assets by focusing on short-term issues or not fully understanding the business. We look to take advantage of these opportunities.” He says they do not consider the benchmark, which means their portfolios are often very different. “And, most importantly, if we think a share is expensive, no matter how large this share is in the benchmark, we will not own it. This helps us protect our investors from permanent capital losses,” Lapping explains.
Why finweek would consider adding it: The fund has created wealth for its long-term investors. Since inception and over the latest 10- and five-year periods, it has outperformed its benchmark. Its returns have also exceeded consumer inflation by a significant margin. The maximum drawdown and lowest annual return numbers show that the fund has successfully reduced downside risk in periods of negative market returns. ■ editorial@finweek.co.za finweek 7 September 2017
15
marketplace
house view BUY
ADVTECH*
SELL
HOLD
By Simon Brown
Education will always be a need Education is one of those sectors most resistant to consumer pressure. Or so we thought. ADvTECH results show that some of its schools are struggling, while Curro had issues with its lower-income Meridian schools – both blamed in part on tough economic conditions. That said, with a lack of trust in the government education system, there will always be demand for private education even if tough economic times put a dampener on the demand. ADvTECH has great school and tertiary education brands, with the latter doing very well in the last set of results. The challenge is finding new schools; greenfield expansion
is a challenge as well-located land is often in very short supply. So a lot of growth will come from acquisitions, coupled with fee increases (likely to average above inflation) and increasing existing schools’ capacity. The recruitment business within ADvTECH does not excite me. I wonder if the company will eventually sell or list it separately. As a last point, Curro is also a great business but markedly more expensive. Hence the choice of ADvTECH, which I calculate at fair value at current levels. I am prepared to buy at up to 1 970c. ■
Last trade ideas BUY
Coronation Fund Managers 24 August issue
HOLD
db X-trackers 10 August issue
SELL
Pallinghurst 27 July issue
BUY
Wescoal 13 July issue
*The writer is buying ADvTECH.
BUY
PPC
SELL
HOLD
By Moxima Gama
Third time unlucky PPC shares declined by more than 7% on 25 August after a third merger attempt with rival AfriSam was cancelled. PPC said in a statement that the merger negotiations were cancelled by AfriSam, which indicated that it intends to submit a new proposal regarding a possible deal between the two parties. Rob Wessels, the acting CEO of AfriSam, said the company believes that a transaction with PPC “will greatly benefit the stakeholders of both companies”, Moneyweb reported. Both companies have said that the combined group would enjoy the scale and strong balance sheet required to create an operationally efficient and financially strong cement producer. Both have battled locally due to weaker domestic demand and increased competition from imports, with rivals elsewhere benefitting from newer, more cost-effective plants. PPC has been expanding elsewhere on the continent to offset the challenging market environment in SA. “Our pipeline of new businesses in Rwanda, and more recently in the Democratic Republic of Congo and Ethiopia, provide both significant growth opportunity and diversity but also present some start-up risks and liquidity challenges,” Johan Claassen, interim CEO of PPC, said in a statement following the announcement that the merger talks with AfriSam have been provisionally shelved. “All of these need to be reviewed and are receiving our attention as we continue with initiatives to generate and preserve cash on a sustainable basis,” he added.
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Last trade ideas HOLD
Naspers 24 August issue
HOLD
Kumba Iron Ore 10 August issue
BUY
South32 27 July issue
BUY
Aspen Pharmacare 13 July issue
How to trade it: PPC has spiked out of its medium-term bear trend, after dipping and retaining support at 345c/share. Currently correcting from a mega-overbought position, gains through 525c/share would present another good buying opportunity, with potential upside to 715c/share. Alternatively, PPC would resume its bear trend below 425c/share and the prior low of 345c/share could be retested. ■ editorial@finweek.co.za www.fin24.com/finweek
marketplace killer trade By Moxima Gama
DISCOVERY DISCOVERY
Ready to run
s
ince its founding in 1992 as a medical aid provider, Discovery has grown into a R96bn financial services firm with operations around the world. It currently controls more than half of South Africa’s medical aid market, and has used its innovative rewards programme Vitality, which incentivises healthy behaviour, to offer disruptive insurance and financial product offerings. The group has the ability to raise funds for investments with ease. It has been investing in expanding its Vitality network globally, as well as its financial services offerings, including the establishment of a banking operation in SA. On the charts: After peaking at 15 580c/share, Discovery corrected from an overextended position. Now that it
52-week range: R107.92 - R150.89 Price/earnings ratio: 24.47 1-year total return: 23.62% Market capitalisation: R96.06bn Earnings per share: R6.07 Dividend yield: 1.2% Average volume over 30 days: 684 093 SOURCE: IRESS
has broken out of bearish territory and is reclaiming its losses, it has legs to run further and form new highs. I had recommended a long above 13 200c/share in February, with a 100% retracement to 15 580c/share. How to trade it: Go long: Discovery is approaching its all-time high at 15 580c/ share and could hesitate to break above that level at first. If upside momentum decelerates at that level, but holds above 14 425c/
SOURCE: MetaStock Pro (Reuters)
share, then an upward break through 15 580c/share would be possible – go long or increase positions above that level. The medium-term target after the triangle consolidation is at 21 885c/share. Go short: If Discovery falls through
14 425c/share after retesting its all-time high at 15 580c/share, go short. A double top could form on continued downside through 13 170c/share. The trough of the pattern would be at 10 790c/share, with the downside target situated at 6 865c/share. ■
HYPROP INVESTMENTS
Investors turn away
h
yprop is Africa’s leading specialist shopping centre real estate investment trust (REIT), with a portfolio that includes malls such as Canal Walk in Cape Town and Rosebank Mall in Johannesburg. Hyprop also owns a small office portfolio in SA, and has a small footprint in Ghana, Nigeria and Zambia, as well as in south-eastern Europe, where it has a footprint in Serbia, Montenegro, Macedonia and Bulgaria. With a number of clothing retailers having closed down in recent months as a result of the economic difficulties in SA, investor appetite for Hyprop has been subdued. On the charts: Hyprop tried to regain upside in March – after peaking at 14 295c/ share and losing about 25% of its
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HYPROP INVESTMENTS
52-week range: R107.30 - R135.45 Price/earnings ratio: 11.52 1-year total return: -9.17% Market capitalisation: R228.32bn Earnings per share: R9.90 Dividend yield: 5.87% Average volume over 30 days: 624 172 SOURCE: IRESS
value – but failed to trade above 13 545c/share. It formed a lower top and lost all its previous gains. How to trade it: Go short: Hyprop is trading on a support trendline retained since March 2016. Continued downside through 11 330c/share would confirm a negative breakout. More importantly, the three-month relative strength index (RSI) has defied its own key support trendline after forming rising bottoms since November last year. Stay short or go short on
finweekmagazine
SOURCE: MetaStock Pro (Reuters)
continued selling below 11 330c/ share, and increase positions below 10 730c/share. If downside persists through the black dashed trendline, support at 9 300c/ share or even at 8 400c/share could be tested. Go long: Hyprop would have to trade above 12 735c/share to escape bearish territory. Gains
to 13 545c/share could follow. Stay long above that level as the 14 295c/share mark will most likely be tested. ■ editorial@finweek.co.za Moxima Gama has been rated as one of the top five technical analysts in South Africa. She has been a technical analyst for 10 years, working for BJM, Noah Financial Innovation and for Standard Bank as part of the research team in the Treasury division of CIB.
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17
marketplace global game-changers By Mariam Isa
CRYPTOCURRENCIES
Speculative instrument or game-changer? Advocates of cryptocurrencies believe this technology will make banks obsolete, while detractors argue it’s just another bubble inevitably destined to burst.
c
Offering (ICO) – which was how what is now the second-most ryptocurrencies have taken the world by storm this popular cryptocurrency, Ethereum, was created. year, grabbing the headlines in mainstream media. But If the funds raised do not meet the minimum required, the you would be hard-pressed to find a single financial money is in theory returned to backers – but some ICOs are adviser who recommends investing in them. Even the fraudulent and it may never be recovered. savvy people who have bought the digital creations themselves Public trust in electronic money is expected to improve when and benefitted from their spectacular performance over the past governments move to protect consumers by introducing controls on few months are reluctant to urge others to follow suit. exchange operators. In fact, price swings in cryptocurrencies The deterrent is the extreme volatility of cryptocurrencies, can be linked to news reports indicating that this is either which appears to be driven by two polar convictions about to happen or is being delayed. – they will either replace money and the banking In June the International Monetary Fund system as we know it, or collapse as dramatically (IMF) released a discussion note suggesting as the internet companies that went bust when that banks should take cryptocurrencies the dot-com bubble burst at the turn of the more seriously as the borders between millennium. Both views are probably correct, if intermediaries, service providers and markets history is anything to go by. have become blurred. The area of crossThe fact is that the market capitalisation border payment services was ripe for change, of the more than 800 publicly traded and could benefit from the new technologies, cryptocurrencies has soared from $10bn at it pointed out. the start of 2017 to $160bn now, according to The IMF report also encouraged central data provider CoinMarket Cap. Market leader banks to consider issuing their own digital Bitcoin, the only example known to the general currencies and put money on blockchain, partly to public, broke the $4 500 barrier last month improve their operations and partly to keep their key – which is incredible considering it was worth a role as lender of last resort. fraction of a cent when it came into existence in 2009. “The introduction and potential proliferation of Detractors argue that digital currencies are The market capitalisation private virtual currencies might, in one view, threaten behaving like speculative instruments with no of the more than to erode the demand for central bank money and intrinsic value, while advocates believe that they will the transmission mechanism of monetary policy,” it eventually make banks obsolete. A study published by warned. “A CBDC (central bank digital currency) may the Cambridge Centre for Alternative Finance in May forestall such private virtual currencies or regulate estimated that there were at least 3m people actively publicly traded cryptocurrencies them to a secondary role in the payments system.” using cryptocurrencies as a new form of cash, rather has soared from $10bn at Central banks in many countries are considering than just speculating in it. That number was much the start of 2017 to that option, including those in Britain, China, Japan higher than previously believed, and is likely to have and Sweden – as well as the European Central Bank. been significantly overtaken in the past three months. But opinion is divided and US policymakers are Put simply, cryptocurrencies are digital assets not sure it’s a good idea. A member of the Federal using decentralised technology to let users now. Reserve board of governors, Jerome Powell, said in anonymously make secure payments of any value March that a central bank issuing digital currency would compete anywhere in the world with minimal fees, without needing to go with innovative private sector products and could stifle innovation through a bank or central authority. They run on a distributed that would be more beneficial to the public over the long run. public ledger called blockchain, which is a record of all transactions At the end of August deputy Reserve Bank governor Francois updated and held by cryptocurrency holders. Groepe told the Fintech Innovation Conference in Johannesburg Given those attributes, cryptocurrencies have become the that while virtual currencies had the potential of becoming widely tender of choice for illicit activities like tax evasion, drug dealing adopted, the bank believed that for it to issue a virtual currency in and money laundering, and are often associated with the dark web. an open system was “too risky”. But they have also excited libertarians who believe that blockchain Nonetheless, the bank has created a three-member team technology will decentralise government and corporate power. to carefully study how digital currencies work and is looking to Financial policymakers are in a quandary over how to regulate introduce virtual currency “sandboxes” so that businesses which the industry, and as they deliberate, cryptocurrencies and their provide cryptocurrency exchange services in South Africa can test applications are evolving at the exponential rate associated with new products. ■ other forms of disruptive technologies. Cryptocurrency start-ups have begun to raise money through what is called an Initial Coin editorial@finweek.co.za
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finweek 7 September 2017
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800 $160bn
Don’t fall foul
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To place your order today or for more information, contact Natalie Da Silva on 011 877 6281 or Natalie.dasilva@newmediapub.co.za.
marketplace Simon says By Simon Brown
FAMOUS BRANDS
A big mistake? An update from Famous Brands* indicates tough local trading conditions. That’s not unexpected. But what was unexpected, and of concern, was the line: “To date, certain of the new UK stores opened since acquisition have not met sales projections.” You buy an asset with certain expectations; if they’re not met, it means you've overpaid. But the bigger issue is whether the UK acquisition of GBK was maybe a large mistake. The results, which are due in late October will give us a clearer picture and I continue to hold, but I will not be buying any more shares until we get a clearer picture.
CITY LODGE
Margins feeling the pressure City Lodge* results saw occupancies falling from 66% to 63% with the comment “weekend occupancies were particularly soft”. Now, City Lodge is not a busy weekend hotelier as it caters mostly to business travellers. But softer weekends show the extent of consumer pressure. With occupancies down, while many costs are fixed (operational leverage, in this case negative), revenue managed to creep up 1.8% on the back of price increases. But headline earnings per share (HEPS) still slipped 3.1% as costs increased 5%, hurting margins. The move into the rest of Africa continues with two new hotels opening in the next six months, but for these results its South African hotels made up some 90% of the business and will continue to dominate. However, the rest of the continent should offer better room rates and will be a nice kicker to profits, but with a note of caution – currency movements will at times help profits and at other times hurt this hotel group.
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finweek 7 September 2017
Simon’s stock tips Founder and director of investment website JustOneLap.com, Simon Brown, is finweek’s resident expert on the stock markets. In this column he provides insight into recent market developments. PURPLE GROUP
Chance to reach critical mass Purple Group announced a R100m deal with Sanlam Investment Holdings (SIH) that sees Sanlam taking a 30% stake in the controlling company for Easy Equities. There are a number of terms and conditions for the deal but it is good news for fans and clients of Easy Equities. It is growing but not fast enough, and could potentially run out of money. This deal gives it another three years to get to critical mass and become profitable. The time period is important as Sanlam has a put option whereby it can sell the stake back to Purple Group for the same R100m, essentially giving it an escape clause and defining the expected period by when Easy Equities needs to have comprehensively proved its business model.
At the beginning of last year I had expected the group to reach HEPS of maybe
100c for this financial year. Now it will need to sweat to get half of that.
WOOLWORTHS
Struggling but not lost Woolworths* results were weak, as expected, showing the first HEPS decline in eight years. Its Australian business is struggling, which underscores the point I always raise about large deals – the synergies and profits always take a lot longer to flow than promised at the time of the deal. Clothing was also under pressure for Woolies while food was all right, but not exciting. Eventually Australia will deliver decent profits and local operations will improve as consumers start recovering. Clothing may however be a bigger problem as local clothing retailers are under threat from new entrants. I continue to hold but am not adding any more shares to my holding, even with my value being above 9 000c. I have enough Woolies shares for now.
ANCHOR CAPITAL
Disappointing performance Anchor Capital results were as bad as the trading update suggested. HEPS was off almost 40% at 22c for the six months. At the beginning of last year I had expected the group to reach HEPS of maybe 100c for this financial year. Now it will need to sweat to get half of that. The reasons include lack of fund performance in its funds; that means less performance fees hurting profits as costs stay largely flat. I had been very bullish on this stock but it has disappointed and needs to start delivering on results. One easy way to see what future results could be like is to watch Anchor’s managed funds. Are they growing in size, and importantly, are they beating the benchmarks and hence earning performance fees? If not, stay away for now. My preferred pick in this space would be Coronation with its very strong dividend yield.
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marketplace Simon says
SASFIN
STEINHOFF
SEA HARVEST
Response way Wait for now too slow Steinhoff shares got killed on 24 August after a German magazine reported allegations of accounting fraud by senior managers at the company’s European operations. The story broke at around 09:30 and management only issued a Sens denying the claims at 16:30. By that time the share had lost some 15% before recovering to close off some 10%. The bigger issue here is that management need to be better at responding to claims; taking seven hours to deny something is not good enough.
The Sasfin share price has been falling and now trades only about 10% above its last reported net asset value (NAV). Typically, this price-to-NAV level of around 1:1.1 is an excellent buying price for the stock, with an expectation that the price will move to around a 40% to 50% premium to NAV, making for a great medium-term trade. But the recent trading update shows HEPS expected to be 14.34% to 21.34% lower and this could pull both the share price and NAV lower. For now, we’re better off waiting for the results and seeing how NAV is doing. Then the share needs improving results to get the price moving higher, so I am watching and waiting.
SHOPRITE
Gallo Getty Images / Reuters
A stellar performance The Shoprite* results hit it out of the park. With a growing and dominant market share – it now accounts for almost a third of all supermarket sales in South Africa – and an operating margin more than double that of Pick n Pay, HEPS is up 11.9% and the dividend up 11.5%. Shoprite is without a doubt the best food retailer in SA and perhaps even globally. The rest of Africa remains very profitable for the group, although currency moves hurt those profits. I am a very happy shareholder and adjusting my buying price for these results, I get a value of almost R285. This doesn’t say the share price is heading to that level, but that at current levels the stock is offering great value.
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For now, we’re better off waiting for Sasfin’s results and seeing how net asset value is doing. Then the share needs improving results to get the price moving higher, so I am watching and waiting.
Good first results Sea Harvest* published its first set of results as a listed company. Local operations did well with the demand for Cape hake remaining robust. Its Australian operation, Mareterram (in which it has a majority stake), did well with the second half typically the stronger period. I have a small stake in the company from listing and shares have traded 50c to 100c above the listing price of 1 250c. But I am also keeping an eye on Oceana. Before the listing of Sea Harvest and Premier Food & Fishing, it was the only fishing stock on the JSE. Now we have three and Oceana has been under pressure, likely in part due to investors switching some Oceana money into the other two listed options. The result of this is Oceana trading at around 9 000c and on a historic price-to-earnings (P/E) ratio of some 14 times – typically a great value level for the company. But I am waiting on results and concerned by lowered liquidity in the stock.
IMPERIAL
ADAPT IT
Clever small deal
Flat and under pressure
Imperial has announced a small R493m deal in the UK buying a Derbyshire-based motor dealership. The size of the deal means it hardly makes a difference for the group as profits will maybe be around R50m, with Imperial doing over R3bn as a group. But it is a clever way to slowly enter a new market rather than going very big and potentially getting it very wrong.
The Adapt IT results were at the lower end of the range with education revenue flat and financial services margins under pressure. The share price of around 900c at the time of writing is around value for these results. ■ editorial@finweek.co.za *The writer owns shares in Famous Brands, City Lodge, Sea Harvest, Shoprite and Woolworths.
finweek 7 September 2017
21
marketplace invest DIY By Simon Brown
STOCKS
Once you’ve found that brilliant share, don’t sell So you’ve managed to find a great share that is performing well. It is vital that you keep your cool and hold on to it despite the market’s ups and downs.
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Gallo Getty Images
100%
My favourite trick is to ask myself where I see this company when I am 65 years old and hitting retirement. Will it still be dominant? Will its products or services still be needed?
Shutterstock
i
That would have made perfect sense, except ’ve been posting 20-year charts of some you’d have missed most of the real return. We locally listed stocks on Twitter. The returns have a fear of missing out and that makes us have been awesome. Naspers* is up from buy bad stocks. But it also makes us sell great R4.50 to R2 815. Capitec** grew from R2 at stocks as we want to lock in the gain and get a listing in 2002 to R852. PSG’s share price is up sense of accomplishment. from R4.40 to R260. These are just some of the But we need to let the winners run and hold better examples of stocks generating massive on even when they reverse, if the story remains returns over the past two decades. There are of compelling. We shouldn’t get despondent course also the downside stocks, such as PPC, during the tough times. As I have written which was R6.50 in 1997 and now trades below before, we need to know why we hold R4 after reaching R53 in 2007. the stock and what attracted The comments about the winners us to it. And if the story and were all pretty much the same: fundamentals remain intact, “We wish we could go back in the price is less of an issue time and buy those stocks in as it will catch up to the 1997!” Now of course that story in time. Over a isn’t possible. So we have to 20-year holding period, try and find the next shares markets will crash and rise, that will be the monster but we need to ignore the movers between now until noise and hold on tight. 2037. It’s hard, but All the abovementioned not impossible. stocks were worth holding An important point is that a through the bear market few people commented that the of 2001 and again during the last two decades were a golden global financial crisis of 2008/09. age of investing and that these In both cases they lost a large chunk returns are not likely to happen again. A loser can only ever cost 100% of their market value, but as great That’s not true; there will always at worst, while winners can companies they survived and when be big winners in the stock market generate many times markets improved, they continued regardless of what’s happening. We their runs. just need to find them. Holding when times are tough The first important lesson is to takes courage, but it is made easier exit the losers. Even though we will in gains. But we still need to get out for me when I remember that I have seldom (if ever) exit at the top, PPC when things go wrong. time on my side. My favourite trick is an example of how bad things can is to ask myself where I see this get. Selling the losers is almost as company when I am 65 years old and important as holding the winners. I hitting retirement. Will it still be dominant? Will say almost, because a loser can only ever cost its products or services still be needed? I find 100% at worst, while winners can generate that doing this really helps put the current story many times 100% in gains. But we still need to and price into perspective and helps me hold on get out when things go wrong. during tougher times and resist the temptation Regarding those winning stocks – let’s deal to sell. with the second part first, holding on. Finding I will tackle how to find these winners in a the next massive winner is hard. Very hard. But future column. ■ the even bigger challenge is holding on to that winner. If you’d bought Naspers at, say, R50, editorial@finweek.co.za what would you have done at R100? And at *finweek is a publication of Media24, a subsidiary of Naspers. R1 000? Sold and taken your profits? **The writer owns shares in Capitec.
marketplace investment By Schalk Louw
MANAGING RISK
How to determine your risk tolerance Two important aspects you need to focus on when investing are emotional risk tolerance and financial risk tolerance.
r
isk management isn’t a difficult concept to explain. We all do it every single day, whether it’s fastening your seat belt after you get into your car, or something as small as booking a table at your favourite restaurant. When you get into your car, you do so with the intention of reaching a particular destination, in the same way that you expect to have a table ready when you get to the restaurant. The seat belt is there to protect you in the unlikely event of an accident, in the same way that you also manage your risk by booking a table to avoid arriving at a fully booked restaurant without a reservation. It is simply a strategy that you implement in order to manage particular risks. Before you develop your investment strategy, you need to determine the amount of risk you can tolerate, irrespective of the type of investment you are considering. Whether it’s a retirement annuity, a living annuity, pension or a small share portfolio, first determining your risk tolerance is the crucial step you need to take before moving forward. The influence that certain factors may have on your risk tolerance, however, makes this a little more complicated than it sounds. Let’s look at an example to illustrate this more clearly: a couple of newlyweds recently took a ski trip to Switzerland for their honeymoon. On the first day of their honeymoon, the wife had an accident on the slopes and severely injured her knee. Needless to say, their honeymoon turned sour almost immediately. Aside from the physical pain she had to endure, her emotions were negatively influenced by the injury she sustained. For that reason, it is extremely important that you measure your risk tolerance by taking two aspects into consideration. The first is emotional risk tolerance. Something you read in a newspaper, or even a slight injury or shortterm illness may have such a negative effect on your emotions on a particular day that you may suddenly consider yourself to be a more conservative investor and you may even wrongfully go ahead and restructure your investments accordingly. Proper financial analysis may indicate that
you are able to take more risk in your investment portfolio, but due to your emotional discomfort you feel compelled to act more conservatively. The second aspect is financial risk tolerance, which is directly linked to your financial well-being. You may have additional capital at your disposal that does not require any short- or long-term needs to be fulfilled, enabling you to apply a riskier investment strategy. Of course, the opposite may also be true. Your calculated risk tolerance may be very high, but due to extremely limited retirement funds, for example, your financial risk tolerance may place you in a more conservative category.
In order to determine your risk tolerance, it is important that you consider the following main factors: 1. Required risk: This indicates the amount of risk that you need to take to meet your needs. Let’s suppose you have R1m to invest, from which you need to withdraw an annual income of R100 000, which cannot be reduced due to budget requirements. This means that you need to take more risk than that offered by a conservative investment such as money market (around 7% interest per year). It also places emphasis on the importance of having an effective savings plan. The earlier you start to save, the fewer risks you will need to take later on in your life. 2. Risk capacity: This indicates your ability to stomach a loss. If you cannot afford to finance short-term losses in your portfolio, it would be wise to avoid highrisk investments altogether. 3. Risk preference: This indicates how much risk you want to take. It doesn’t depend on your financial well-being, and is more emotionally driven. It may indicate your ability to take higher risks simply because you feel comfortable in doing so.
Before you develop your investment strategy, you need to determine the amount of risk you can tolerate, irrespective of the type of investment you are considering.
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There are many online tools available that can help you to determine your risk tolerance. If you’re unsure, however, you can always consult a professional to assist you before you enter the investment world. ■ editorial@finweek.co.za Schalk Louw is a portfolio manager at PSG Wealth.
finweek 7 September 2017
23
marketplace invest DIY By Simon Brown
ETFs
A truly fantastic present for the kids Many people give their young relatives toys or the latest gadgets on special occasions. But after a while, these will be forgotten, damaged or simply outdated. Consider giving exchange-traded funds instead – a truly useful gift the children will thank you for once they reap the rewards.
s
omething I have long advocated is buying children and/or grandchildren exchange-traded funds (ETFs) for Christmas and birthdays. Now, I am not a total scrooge – of course you can give physical gifts on special days – but the rest of the potential spend can go to an ETF. This is always a great idea as it’s truly a gift that will last and give real benefits over time. Crucially, I always suggest ETFs rather than individual shares as the latter requires managing them and potentially switching them over time, whereas a broad ETF can be bought and left until it is needed. This always raises the question of how this process is practically managed. The first question is if the ETFs should be bought in the child’s name or that of the guardian. As far as tax is concerned, this question is moot as any tax will accrue to the guardian (I’ll touch on tax-free investing in a moment). Opening an account for a child is easy enough; the parent or guardian does the FICA process and if the account is being opened with a financial services provider (FSP), there is no age limit. A real stockbroker account requires the child to be at least seven years old. But I prefer to set up a single account for the kids in the guardian’s name for a simple reason. Assuming there are two or more children and they are of different ages, individual accounts will result in different returns due to timing of the purchases and this may create issues later on. So a single account that all the children have rights to is preferred and they’ll split the money when the time comes. As for whether to use a tax-free account or not, I do not recommend this route. While taxfree accounts are a great product, the concern is if the child then wants to use the money for their tertiary education, spending the majority (or all) of the money in their early twenties. If this happens they’ll still have benefitted from the tax-free nature of the account, but will lose
the next 40-plus years of potential tax-free gains, which is when the real power of such an investment kicks in. If the intention is that the child does not access the money until they’re nearing retirement, then investing it in a taxfree account works. But in most cases the money will be used well before then. Hence, I always suggest rather letting the children open a tax-free account when they start working and earning. This way they’ll get many decades of tax-free growth as opposed to only getting one or two decades before spending the money when they’re around 20 years old. Importantly, if you do want to go the tax-free route, the account needs to be in the child’s name, otherwise you’re using the parents’ annual and life-time limits. So, with all that in mind, here’s how I do it for my niece and nephew who are now seven and nine respectively: When my nephew was born we opened a new account in my sister’s name with a cheap provider and I contribute money every birthday and Christmas. Grandparents and others are also able to deposit money into the account and we buy the ETFs on these occasions. Another real benefit is that even though my niece and nephew are not even 10 yet, they’re aware of investing. They understand they own ETFs (although the intricacies of ETFs are beyond them) and that these are for when they’re older. I had thought they’d get grumpy with me for never giving them presents, but this has not been the case and they’re happy talking about their fancy investments. So we’re turning kids into investors at a very young age. ■ editorial@finweek.co.za
I always suggest rather letting the children open a taxfree account when they start working and earning.
24
finweek 7 September 2017
Another real benefit is that even though my niece and nephew are not even
10
Getty Images/E+
yet they’re aware of investing. They understand they own ETFs (although the intricacies of ETFs are beyond them) and that these are for when they’re older.
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marketplace technical study By Lucas de Lange
JSE
Resources shares again in the spotlight
r
Rise in Exxaro’s earnings per share shoots the lights out. take-over of the successful Virgin Active group in the UK. Since then it has fallen by some 67% to R58 at the time of writing. It’s one of many businesses in the UK that’s been affected by the Brexit issue. There are market players who believe it could drop even further owing to problems it’s experiencing with the New Look chain of womenswear fashion shops. The group is the second-largest retail chain of women’s clothing in the UK, but it’s cash negative at the moment. New Look owns 872 shops in 20 countries. Its CEO, Anders Kristiansen, is however very ambitious. He regards China as a great opportunity. New Look already owns 110 shops in China, but he is talking of an eventual chain of 2 000 shops. Apparently the millions of people who join the middle-income segment annually make him quite excited. Although there’s a feeling that Brait could fall even further, there are market players who believe it has the potential to recover. Brait is financially strong and has competent managers, such as the well-known John Gnodde, who wants to turn New Look into a success story. They also include Brait’s chairman, Christo Wiese, who is dissatisfied that the group’s share price is being punished in the short term. Brait’s three other major investments, Virgin Active, Premier Foods and Iceland Foods, are performing satisfactorily. Among the shares that have broken through Barclays Africa, trading at relatively high volumes, catches the eye. Others that look interesting are Bidvest, Remgro and Northam. ■ editorial@finweek.co.za
Capitec is still reaching one high after another on the JSE, despite analysts having reservations as to whether it could maintain its high growth rate.
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STRONGEST SHARES*
COMPANY EXXARO IMPERIAL KUMBA IRON ORE NASPERS-N GLENCORE ANGLO AMERICAN ASSORE CAPITEC DISCOVERY ARM FIRSTRAND STANDARD BANK BHP VODACOM MR PRICE ADCOCK INGRAM SHOPRITE RICHEMONT SOUTH32 CLICKS BArLORWORLD FORTRESS-B PSG MONDI LTD MONDI PLC RMB HOLDINGS AMPLATS SUPER GROUP SANLAM GOLD FIELDS ASTRAL AVI SANTAM STEINHOFF TFG GRINDROD CORONATION TIGER BRANDS TRUWORTHS RMI HOLDINGS SAPPI INVESTEC PLC NAMPAK RESILIENT BIDCORP OLD MUTUAL MASSMART KAP PICK N PAY RCL FOODS BARCLAYS AFRICA FORTRESS-A MTN GROUP BIDVEST ATTACQ REMGRO NORTHAM
% ABOVE 200-DAY EXPONENTIAL MA 23.1 22.9 21.0 20.6 19,8 18,8 17.2 17.0 14.6 14.2 14.1 13.9 13.6 13.5 12.6 12.6 11.6 11.5 11.4 11.3 11.1 10.6 10.4 10.0 9.8 9.1 8.7 8.3 8.3 7.4 7.3 7.3 6.4 6.3 5.5 5.5 5.4 5.0 4.9 4.9 4.6 4.4 3.8 3.6 3.6 3.4 3.4 3.2 2.7 2.6 2.1 2.0 2.0 1.5 1.3 0.8 0,6
WEAKEST SHARES*
COMPANY ARCELORMITTAL SA LONMIN AVENG GROUP FIVE BRAIT ANGLOGOLD ASHANTI SIBANYE PPC DRDGOLD HARMONY LEWIS CHOPPIES CAPCO PAN AFRICAN RESOURCES PIONEER FOODS FAMOUS BRANDS SUN INTERNATIONAL MPACT NETCARE WOOLIES LIFE HEALTHCARE THARISA TSOGO SUN RBPLAT OCEANA IMPLATS REBOSIS CITY LODGE HYPROP BAT TELKOM LIBERTY HOLDINGS ASCENDIS RAUBEX REINET GROWTHPOINT DISTELL REDEFINE RHODES SA CORPORATE EMIRA SPAR ASPEN TONGAAT HULETT MMI HOLDINGS AB INBEV WBHO NEDBANK M&R HOLDINGS SASOL
-13.4 -13.3 -12.5 -12.3 -12.1 -11.4 -10.4 -10.3 -9.8 -9.7 -8.3 -7.6 -7.4 -7.1 -6.8 -6.3 -5.7 -5.2 -4.1 -4.0 -3.9 -3.9 -3.5 -3.5 -3.4 -3.2 -1.9 -1.8 -1.5 -1.5 -1.1 -1.0 -0.9 -0.6 -0.5 -0.5 -0.2
BREAKING THROUGH*
COMPANY
Lucas de Lange is a former editor of finweek and the author of two books on investment.
PICK N PAY BARCLAYS AFRICA BIDVEST REMGRO Exxaro holds 20% of Sishen Iron Ore Company, with Kumba Iron Ore owning NORTHAM
*finweek is a publication of Media24, a subsidiary of Naspers.
the remainder.
finweekmagazine
% ABOVE 200-DAY EXPONENTIAL MA -38.9 -36.5 -36.5 -27.8 -24.9 -22.7 -21.9 -21.6 -20.5 -18.4 -16.0 -15.2 -14.2
% ABOVE 200-DAY EXPONENTIAL MA 2.7 2.1 1.5 0.8 0.6
*Based on the 100 biggest market caps
finweek 7 September 2017
25
Image: Anglo American
esources shares were once again in the spotlight over the past month with mining shares making up six of the 10 strongest shares. Exxaro heads the list and reaffirms the old adage that earnings growth pulls a share price upwards like a magnet. Exxaro’s interim report for the six months to June shows that its operating profit increased by 35% to R2.9bn compared to the corresponding period last year. Operating cash flow increased by 68% to R3.7bn, while headline earnings per share shot up by no less than 185% to 822c. The company’s shareholders have been rewarded with an increase of 210c in its interim dividend to 300c/share. That there are market players who expected the strong earnings growth at Exxaro is proven by the fact that the share price has increased by more than 50% over the past 10 weeks. Kumba is second on the list after it also recorded excellent figures and resumed dividend payments, which meant much for Anglo American. Kumba’s interim earnings jumped by 53%. Capitec is still reaching one high after another on the JSE, despite analysts having reservations as to whether it could maintain its high growth rate. It’s especially its high price/earnings multiple, which seems to be heading for 30, that makes them nervous. Among the weakest shares, we have the old strugglers and an unexpected newbie, the previously popular Brait, fifth on the list. Not so long ago Brait was one of the favourites on the JSE. For example, it increased by about 960% from August 2011 to reach a high of R174 in December 2015. The market was buoyed by a number of exciting deals it had closed, including the
marketplace investment By Natalie Greve
TOBACCO INDUSTRY
Not going up in smoke just yet Governments are cracking down on the tobacco industry, which is responsible for the deaths of millions of people a year. Yet some market watchers believe the investment case for this defensive sector remains attractive.
i
t’s an agonising decision for some and a trivial matter for others: should you invest in an industry that the World Health Organization says kills over half of its consumers and is responsible for the death of 7m people a year? From a fundamental point of view, tobacco shares present an “extremely attractive” investment proposition, says Andrew Dittberner, chief investment officer at Old Mutual Wealth Private Client Securities, not least of all because of the industry’s impressive compounding abilities. “The ability to compound is driven by robust pricing power, a high level of cash generation, translating into high-quality earnings, and generous, sustainable dividend payments. “The defensive nature of the businesses also makes for relatively stable earnings profiles, while the management teams of the larger tobacco companies have shown themselves to be prudent allocators of capital,” he explains.
The counter-argument
several African officials in a bid to relax tobacco laws. Currently trading at around R814.73 a share on the JSE, the company announced in August that it would instigate its own internal investigations into the alleged activities.
Impending legislation Retail volume sales are expected to continue to decrease after the department of health in 2016 proposed further amendments to tobacco legislation, including a draft bill on plain packaging. But Dittberner argues that the tobacco industry has, and always will be, highly regulated. “The recent news around reducing the nicotine content of cigarettes was not new to the industry players,” he says. “They have overcome regulatory hurdles in the past, and while the announcement has created some noise in the industry, we do not believe it is something that materially impacts the industry in the near term.” Tobacco Institute of Southern Africa chairperson Francois van der Merwe, meanwhile, expresses concern that any impending legislation that could potentially exacerbate the “catastrophic” levels of illicit trade warrants close scrutiny and may be legitimately questioned. Since the current legislation appears to be achieving the department of health’s objective of reducing tobacco consumption, questions could be raised regarding the purported need for further, more extreme regulation locally, he says. Levels of illicit tobacco in SA rate among the highest in the world. “Clearly, the current legislation is not addressing this scourge. “Not only is the fiscus negatively affected with losses of more than R27bn between 2010 and 2016, but so too are the objectives of the department of health as illicit traders, by bypassing taxes and duties, are able to sell a pack of 20 cigarettes for as little as R7, making them far more accessible to the public, including the youth,” he comments.
But a July 2017 report by Euromonitor International shows that sales of tobacco steadily declined across South Africa in 2016. “With negligible real gross domestic product (GDP) growth, inflation reaching 6% and the unemployment rate rising to 27%, manufacturers were further challenged by rising duties, whilst dealing with increasingly price-sensitive consumers. Nevertheless, the decline in volume sales was mitigated by the strong performance of smaller categories, such as fine cut tobacco,” the report states. “The health and wellness trend, which is expected to prevail in the future, will contribute to lower demand for tobacco. On the other hand, intense competition will shrink profit margins and force smaller players to exit the market,” says Euromonitor. Future gains were likely to be seen across the combustible and vapour product offering, with this trend particularly noticeable amongst millennial smokers. Euromonitor observes that the “glamorisation” of variants introduced to the market in 2016 prompted Where to invest? Illicit traders, by bypassing taxes existing tobacco consumers to trade up, while drawing in With the industry becoming increasingly consolidated, investment and duties, are able options in tobacco have narrowed. The net result of the recent non-smokers. to sell a pack of 20 Local cigarette manufacturer Gold Leaf Tobacco (GLT) consolidation of Reynolds and BAT is that there are only a few cigarettes for as Corp, which focuses on economy brands, posted the companies that have significant market share in the global market. little as highest volume growth in SA in 2016. It benefitted from the “The problem for smaller, lesser-known tobacco companies depreciation of the rand while imported brands struggled to is that smokers are very brand-conscious and loyal, thus it is manage inflating unit prices. difficult for these companies to take market share, especially in Despite remaining a relatively small player compared established markets. with British American Tobacco (BAT), GLT moved closer to “Locally [on the JSE], only BAT is available, thus limiting local rivals such as Philip Morris SA and JT International. GLT earlier this year investors’ choices. However, the recent regulatory announcement did announced plans to establish a manufacturing facility in neighbouring provide a decent entry opportunity for investors looking to get in at lower Zimbabwe as a springboard into the region. levels. On the global front, Imperial Brands is our preferred pick, due to The domestic tobacco industry’s reputation has also been recently valuation considerations and the exposure to both developed markets, as soured by claims that JSE-listed BAT is to face an official investigation well as a number of high-growth markets,” advises Dittberner. ■ by the UK’s Serious Fraud Office after allegations that executives bribed editorial@finweek.co.za
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R7.
26
finweek 7 September 2017
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marketplace investment By Natalie Greve
GOLD
Why the yellow metal is still an investor favourite While gold has its fair share of detractors, Krugerrands, for example, are still immensely popular with investors, who bought coins amounting to 1.1m ounces of gold bullion in 2016.
i
t’s an ancient store of value and the oldest precious metal known to man, but does gold remain a competitive investment option? While any investment decision is ultimately a personal one, the yellow metal does offer some appealing upsides. Global demand for gold has increased over recent years, with developing economies accounting for two-thirds of the growth in demand, led by China and India. According to the World Gold Council, 2016 full-year gold demand gained 2% to reach a threeyear high of 4 308.7 tonnes. In addition, international geopolitical uncertainty is expected to continue to drive investors towards safe-haven The gold coin has since 2000 appreciated by assets such as gold, while gold mine supply is expected to peak in 2017, which is supportive for a bullish view on gold prices. Concerns over North Korea’s nuclear missile programme, for example, pushed gold prices to an 11-month high of above $1 300 an ounce at the time of writing. while the price of gold has Analyst Hilton Davies, writing in a report for SA Bullion, increased by roughly 355% over the same period. said gold is the only hard currency the value of which does not rely on the responsible governance of governments. “In the case of all other currencies today, the holder submits to faith in the government of the country that issues the currency – this is the nature of fiat currencies,” he commented. Old Mutual Investment Group investment professional Meryl Pick is less bullish, telling finweek that as the gold price had rallied in the short term, it was most likely to move sideways or retreat over the next few months. “In the short term, the US Federal Reserve’s intentions to raise US interest rates will put pressure on the gold price, but this may be offset by ongoing geopolitical uncertainties in various parts of the world. A gold holding thus always has a place in one’s portfolio as insurance against events that shock financial Aneesa Razack CEO of FNB markets as gold tends to be completely uncorrelated with other ShareInvest assets,” she advised. However, critics remind that, unlike a bond or share, gold delivers no interest or dividends, and it does not protect the investor from the effects of inflation. There is also no guarantee that it will appreciate in value. The metal’s most notorious critic, billionaire Warren Buffett, describes gold as a “crisis commodity” with little intrinsic value. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year Meryl Pick Investment professional at or two years than they are now. And if they become more Old Mutual Investment Group afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything,” he has been quoted as saying. ■ editorial@finweek.co.za
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759%,
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How to invest in gold Investing in gold (excluding investment in gold mining companies) is normally done in one of two ways: through the purchase of exchange-traded funds (ETFs) that track the price of gold and Krugerrands, or in physical gold bullion. Launched in 2004, Absa’s NewGold ETF offers the opportunity to invest in gold bullion, as it tracks the rand price of gold. The debentures are fully backed by physical gold bullion, with each debenture approximately equivalent to 1/100th of a fine troy ounce of gold bullion, which is held with a secure depository on behalf of investors at an annual fee of 0.4% of its value. The product has since attracted over R21bn in investment, and is the largest ETF listed on the JSE. Krugerrand-denominated ETFs more specifically reflect the price changes in Krugerrands, which domestically remain the most popular, and cheapest, vehicle for direct investment in gold bullion. The global appetite for gold has supported sales of 1.1m ounces of gold bullion Krugerrands in 2016 worth $1.3bn, making it the world’s best-selling new gold coin last year. FNB ShareInvest CEO Aneesa Razack advocates for the purchase of Krugerrands over investment in goldbacked ETFs, telling finweek that the gold coin has since 2000 appreciated by 759%, while the price of gold has increased by roughly 355% over the same period. FNB’s ShareInvest product allows the purchase of fractional ownership of Krugerrands, from as little as 1/10th of an ounce, at the prevailing price. Krugerrands are also VAT zero-rated and attract no trading fees, ultimately lowering transaction costs, whereas ETFs have brokerage and other transaction fees that effectively impact the base from which the investment compounds over time. Investment manager SA Bullion allows investors to acquire gold by opening a call account in which cash contributions are held and immediately applied toward the purchase of gold, which is then directly owned and held at a vault at Rand Refinery. Investors are able to request physical delivery of the gold, which is perfectly liquid at full value and can be requested with a 24-hour notice period. The South African Reserve Bank also guarantees buy-back of the gold. 2017 marks the 50th year since the Krugerrand was introduced, with more than 53m ounces of gold, or over 60m pieces, having been sold since its inception. ■
finweek 7 September 2017
27
marketplace directors & dividends
DIRECTORS’ DEALINGS COMPANY
DIRECTOR
DATE
TRANSACTION TYPE
VOLUME
PRICE (C)
VALUE (R)
DATE MODIFIED
BEST AND WORST PERFORMING SHARES
AEEI
K Abdulla
24 August
Sell
1,500,000
330
4,950,000
29 August
AEEI
K Abdulla
25 August
Purchase
500,000
390
1,950,000
29 August
AEEI
K Abdulla
28 August
Purchase
500,000
390
1,950,000
29 August
BEST
ANCHOR
M Teke
28 August
Purchase
10,000
459
45,900
30 August
BALWIN
R Zekry
23 August
Sell
3,450,000
710
24,495,000
EQUITES
G Lanfranchi
21 August
Sell
280,000
1845
5,166,000
EQUITES
N Mtetwa
24 August
Purchase
5,311
1864
IMPERIAL
M Akoojee
24 August
Exercise Options
21,883
2423
IMPERIAL
OS Arbee
23 August
Exercise Options
40,770
2077
846,792
30 August
IMPERIAL
OS Arbee
24 August
Exercise Options
23,377
7821
1,828,315
30 August
IMPERIAL
OS Arbee
24 August
Sell
4,214
19480
820,887
30 August
IMPERIAL
MP de Canha
28 August
Exercise Options
25,011
9189
2,298,260
30 August
IMPERIAL
MP de Canha
28 August
Exercise Options
43,625
3791
1,653,823
30 August
IMPERIAL
MP de Canha
28 August
Exercise Options
43,950
1328
583,656
30 August
IMPERIAL
RJA Sparks
25 August
Sell
20,000
20460
4,092,000
30 August
IMPERIAL
M Swanepoel
23 August
Exercise Options
40,770
2077
846,792
30 August
WEEK PRICE (c)
CHANGE (%)
Ecsponent
46
53.33
25 August
Adrenna
100
35.14
28 August
African Dawn Capital
45
28.57
98,997
28 August
Oando
30
25.00
530,225
30 August
Silverbridge
250
23.76
SHARE
WORST Hwange Colliery
75
-92.15
WG Wearne
4
-33.33
Esor
25
-16.00
Alaris
171
-14.50
Primeserv
60
-14.29
IMPERIAL
RA Venter
25 August
Exercise Options
23,107
3565
823,764
30 August
IMPERIAL
RA Venter
25 August
Sell
4,007
20622
826,323
30 August
INVESTEC LTD
C Whelan
25 August
Sell
198,266
10170
20,163,652
30 August
INDICES
INVESTEC LTD
C Whelan
28 August
Sell
105,101
10145
10,662,496
30 August
INDEX
INVESTEC LTD
C Whelan
28 August
Sell
24,899
10120
2,519,778
30 August
JSE
G Brookes
28 August
Sell
6,135
13810
847,243
30 August
JSE
JH Burke
28 August
Sell
7,969
13810
1,100,518
30 August
WEEK CHANGE* VALUE (%)
JSE ALL SHARE
56 409.62
0.44
JSE FINANCIAL 15
15 829.15
1.44
JSE INDUSTRIALS JSE SA LISTED PROPERTY
48 274.61
0.66
650.35
0.26
JSE SA RESOURCES
19 905.12
1.97
49 883.27
0.30
JSE
Z Jacobs
28 August
Sell
6,751
13810
932,313
30 August
JSE
NF Newton-King
28 August
Sell
43,835
13810
6,053,613
30 August
JSE
LV Parsons
28 August
Sell
20,298
13810
2,803,153
30 August
JSE
LV Parsons
22 August
Sell
11,000
13869
1,525,590
25 August
JSE
A Takoordeen
28 August
Sell
11,669
13810
1,611,488
30 August
LIBERTY
DC Munro
22 August
Purchase
48,000
10495
5,037,600
23 August
NEDBANK
RK Morathi
28 August
Sell
4,550
22147
1,007,688
30 August
CAC 40
503 192
-1.63
NUWORLD
JA Goldberg
24 August
Purchase
76,928
2400
1,846,272
25 August
DAXX
1 194 588
-1.88
NUWORLD
JA Goldberg
25 August
Purchase
125,000
4000
5,000,000
30 August
FTSE 100
733 743
-0.61
NUWORLD
MS Goldberg
24 August
Purchase
38,464
2400
923,136
25 August
HANG SENG
NUWORLD
BH Haikney
24 August
Purchase
13,745
2400
329,880
25 August
NASDAQ COMPOSITE
NUWORLD
GR Hindle
24 August
Purchase
36,652
2400
879,648
25 August
NUWORLD
D MacDonald
24 August
Purchase
6,872
2400
164,928
25 August
NUWORLD
JK Makamu
24 August
Purchase
6,872
2400
164,928
25 August
NUWORLD
H Savadier
24 August
Purchase
20,000
2400
480,000
25 August
NUWORLD
H Savadier
23 August
Sell
2,500
3970
99,250
29 August
NUWORLD
H Savadier
23 August
Sell
2,000
3975
79,500
29 August
NUWORLD
24 August
Sell
5,000
3950
197,500
29 August
24 August
Purchase
6,872
2400
164,928
25 August
NVest
H Savadier BJ van der Westhuizen AV Kent
21 August
Purchase
800
200
1,600
28 August
NVest
AV Kent
22 August
Purchase
6,200
200
12,400
NVest
AV Kent
23 August
Purchase
343
180
NVest
SR Kwatsha
25 August
Purchase
7,000
NVest
T Motsifane
21 August
Sell
800
NVest
DL Schemel
23 August
Purchase
16,793
RAUBEX
F Kenney
24 August
Sell
1,000,000
SOUTH32
G Kerr
25 August
Purchase
1,536,017
SOUTH32
G Kerr
25 August
Sell
1,051,929
NUWORLD
JSE TOP 40
NIKKEI 225
2 776 501
1.33
630 188
0.37
1 936 255
-0.37
*Percentage reflects the week-on-week change.
DIVIDEND RANKING F’CAST DPS (C)
F’CAST DY (%)
THARISA
217
14.5
TEXTON
101
13.4
28 August
REBOSIS
127
11.6
617
28 August
EMIRA
149
10.8
200
14,000
28 August
ACCPROP
200
1,600
23 August
KUMBA IRON ORE
200
33,586
28 August
REDEFINE
92
8.6
2252
22,520,000
28 August
SA CORPORATE
46
8.4
A$0
A$0
30 August
FORTRESS-A
142
8.1
A$2.86
A$3,008,516
30 August
GROWTHPOINT
195
7.9
SPEAR
CS McCarthy
22 August
Sell
295,508
1000
2,955,080
24 August
TRANSPACO WOOLIES
L Weinberg SAR Rose
25 August 24 August
Exercise Options Purchase
25,000 4,239
1 6361
250 269,642
28 August 29 August
SHARE
58
10.7
2146
10.3
All data as at 1400 on 30 August 2017. Supplied by IRESS.
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finweek 7 September 2017
www.fin24.com/finweek
Images: Shutterstock images
cover story exchange-traded funds
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www.fin24.com/finweek
cover story exchange-traded funds
THE RISE OF
THE ETF By Marcia Klein
Exchange-traded funds (ETFs) are gaining in popularity among investors as they are relatively cheap and, unlike other passive forms of investment, they can be traded like shares. What is the state of the ETF industry in South Africa and what should you know before investing in these funds?
7 000 56
@finweek
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HOW TO CHOOSE AN ETF Choosing an ETF depends very much on what you want investment exposure to. ETFs range from the broadest index trackers, locally and internationally, to specific indices. For investors wanting to buy into commodities, there are ETFs covering everything from gold to palladium, platinum, copper, silver, oil and wheat. There are ETF options for investment in money markets, bonds and property. As with equities, an investment decision requires some understanding of the risks and historical returns of each of these investments. The best option for investors with little understanding of these risks is a broader index like the Top40 in SA or any of the big global indices like the S&P 500 or MSCI indices. Many investors opt for broad trackers and there is growing interest in offshore ETFs, which track indices in the US, Europe and Asia. finweek 7 September 2017
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Gallo Images/Getty Images
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ith the growing trend for for more than 20% of volume on US markets. investors to move away According to the FT, seven of the 10 most from active managers, more actively traded securities on US stock markets and more money is flowing last year were ETFs – not shares. into exchange-traded funds (ETFs), one of the CNBC quoted Elliott Management’s Paul most popular passive investment vehicles. Singer going as far as to say that the move to ETFs are securities that trade on the stock passive investing is “destructive to the growthexchange and track an index, commodity or creating and consensus-building prospects bonds. ETFs trade like shares of free market capitalism”. and can be bought and sold According to CNBC, “ETFs There are now around easily at fractions of the price of globally now have $1tr more the underlying investments. in assets than hedge funds”, Investors have choice in while about $2.2tr of assets are terms of whether they want an indexed to the S&P 500. ETFs globally, while in SA there are index that follows the market In fact, there is now an ETF, as a whole or particular sectors the Toroso ETF Industry Index, or particular commodities, and launched by US investment can choose between local or company Toroso Investments, ETFs and 21 exchange-traded offshore ETFs. which tracks the growth in notes, or ETNs. With the first ETF launched the ETF industry by tracking in Toronto in 1990, in the US in companies that derive revenue 1993, and in South Africa in 2000, ETFs are from the ETF ecosystem, making it possible to a relatively new financial instrument, but an buy an ETF linked to the success of the ETF increasingly popular one. There are now around industry itself. 7 000 ETFs globally, while in SA there are 56 The growth in popularity of ETFs arises ETFs and 21 exchange-traded notes, or ETNs. from a growing realisation that very few active In fact, ETFs have grown in popularity to the managers are able to pick stocks that continue extent that they have recently caused some to outperform the market. ETFs are one of the concern, with the Financial Times (FT) saying easiest ways to invest in index trackers, and ETFs are “eating the stock market”, accounting are cheaper than many other investments,
cover story exchange-traded funds
particularly those that are actively managed. SA has been relatively slow to reach the kind of volumes one sees in the US, partly because of its late start and more gradual acceptance of ETFs as an investment vehicle, but also because South African investors have traditionally preferred dealing with active managers. Younger investors, however, are more keen to make their own investment decisions, and ETFs offer a relatively cheap entry into indextracking funds.
more valued by investors,” Brown says. Galileo Capital’s head of wealth management, Yolande Botha, says investor interest in ETFs has increased substantially, although the uptake in SA is not as noticeable as in the US. “As a percentage of the market it is very small and active managers still have the bulk of investment capital.” People are talking more about the costs, leading to more interest in ETFs, but active managers have dropped fees too, she says.
ETF investment in South Africa
Why ETFs?
Yet, ETFs are making their mark in SA. The Yolande Botha market cap of ETFs reached R80bn at the Head of wealth management at Galileo Capital end of June, says Mike Brown, CEO of etfSA. “There has been a nice increase in the size of the industry, trading volumes have picked up substantially, and there have been new participants coming in like Cloud Atlas and others, while Sygnia bought Deutsche ETFs are making their mark in SA. The market cap of ETFs reached Bank’s South African ETF business earlier this year. Satrix has brought out five new ETFs and there are quite a few other listings by ETF providers, so activity is picking up substantially. at end June. “There is a general feeling across the investment community that passive investments have a role to play, and they tend to outperform 80% to 85% of active managers. People are saying that in difficult markets cost containment, flexibility and transparency are
ETFs are gaining popularity, but it is important for investors to realise there are a range of ETFs and their success depends entirely on the underlying investment. “ETFs are simply investment instruments, and performance depends on which ETF you buy,” says Ashburton Investments portfolio manager Wayne McCurrie. “ETF is not a separate asset class like equity or property or a share – an ETF simply tracks a commodity price or index, it is just a vehicle to effect an investment choice.” That said, the big advantage with ETFs is that they are cheap, “and they give you exactly what they say they are going to give – they track an index or a price. An active manager, on the other hand, is making decisions on your behalf and this costs more. They may or may not be successful, although the decision to buy the ETF may be wrong too.” An ETF is not the only instrument for tracking indices or prices. Unit trusts do exactly the same thing. ETFs, however, allow the investor to buy and sell easily and should be cheaper. Investing in ETFs does not, however, make any investment decisions for you. “With an ETF, you, or your adviser or financial planner, still have to make an overall decision of where your assets should be and your risk profile, and the secondary decision is how to invest, and an ETF is one of the investment options,” McCurrie explains.
TOP-PERFORMING ETFs Performance to 31 July measuring total investment returns:
1 year Standard Bank Africa Rhodium ETF: 46.23% DB MSCI China ETN: 29.38% Standard Bank Africa Palladium ETF: 19.11% 5 years (per annum) db X-tracker MSCI USA ETF: db X-tracker MSCI World ETF: db X-tracker MSCI Japan ETF:
24.72% 22.09% 20.62%
10 years (per annum) Satrix Indi 25 ETF: NewGold ETF: Satrix Swix Top40 ETF:
16.37% 12.9% 10.05% SOURCE: eftSA
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Mike Brown CEO of etfSA
ETFs versus other passive investments The main benefit of an ETF over other passive forms of investments is that they can be traded like shares, says Botha. www.fin24.com/finweek
Images: Supplied
R80bn
cover story exchange-traded funds
ETFs are one of the easiest ways to invest in index trackers, and are cheaper than many other investments, particularly those that are actively managed.
Ben Meyer, head of Sygnia Itrix, says ETFs offer flexibility as one gets exposure to a large diversified basket of underlying shares with one single trade: “There is a lower settlement cost per trade as one trade settlement compares to the settlement cost of potentially more than 1 500 shares, as in the case of the MSCI World index.” ETFs offer intra-day trading compared to unit trusts that settle once a day. Satrix explains on its website that in the case of both unit trusts and ETFs, the investor essentially owns a “proportionate share” of the underlying investments held by the fund. “With unit trusts, the investor holds participatory units issued by the fund, while in the case of an ETF, the participatory interest comprises a security or share listed and traded on a stock exchange.” There are many more unit trusts than ETFs, so they offer more choice. SA is quite well represented with ETFs, considering that it is a fairly small market, says Brown. “There is room for some more, but it is never going to be as big in terms of number of products as unit trusts, of which there are about 1 300.” But ETFs allow the retail investor “to access the same exposure as institutions as ETF trade sizes are much smaller than the underlying basket size, so you can therefore access broad diversified exposure with a small investment,” says Meyer. “ETFs are for everyone’s portfolios, including institutional investors, as the international experience shows.” ETFs can sit in any portfolio, says Botha. They are for investors starting out and for experienced and wealthy clients. Many clients, she says, are happy to get the market return and so investing in ETFs or index funds is sufficient for many investors. Those with significant amounts to invest – say R1m or more – should diversify.
ETF performance But investors do not necessarily get the @finweek
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market return. While commentators say ETFs simply track the index or price they are following, there can be significant differences in the performance of various ETFs that are essentially following the same entity. The performance of ETFs should be directly correlated to the performance of the index or bond or commodity it is invested in. Yet, surprisingly, if one looks at performance tables provided by etfSA to the end of July, there are, for example, seven ETFs that track the JSE Top40 Index, which recorded a 9.42% increase in total returns in the year to end July, yet the performance of the ETFs varies from -4.35% to 9.13%. The Stanlib Top40, at 9.13%, performed the best while the Satrix 40 was up 8.94%, Ashburton Top40 7.43%, Stanlib Swix Top40 5.37%, Satrix Swix Top40 5.14%, NewFunds Swix Top40 4.94% and CoreShares Equally Weighted Top40 –4.35%. This partly reflects weighting – as one can see from the CoreShares performance, where Top40 shares are equally weighted and the two Satrix options, where Swix essentially gives a lower weighting to resources than the nonSwix option. The varied performance also reflects the importance of costs and fees. Brown says costs play a role in performance, “but there could also be some issues in terms of efficiency”, he says. Investors should definitely compare fees, as well as the exact nature of underlying investments, before putting their money into ETFs. As these figures show, not all Top40 trackers are the same. The performance of ETFs offering offshore exposure is also dependent on exchange rates, so the performance can vary markedly from that of the underlying investment. The major reason for investing in offshore ETFs is for offshore exposure. Meyer says investors can buy the Sygnia Itrix ETFs on the JSE, for example, without the need to get a tax clearance certificate or do a lot of paperwork.
Wayne McCurrie Portfolio manager at Ashburton Investments
What you should ask before investing ■ What is the performance of the ETF, over a number of different periods, against the actual returns of the index or commodity it tracks? ■ What are the costs? Do these include buying and selling the ETF, and will I be taxed when I sell? ■ Does this ETF track the index exactly or does it apply different weightings to certain shares? ■ Given the volatility of the rand, to what extent can you predict the performance of this offshore ETF?
finweek 7 September 2017
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cover story exchange-traded funds
ETFs for beginners
Not for everyone Whether they will become the preferred option for investors remains to be seen. Berkshire Hathaway’s CEO Warren Buffett 34
finweek 7 September 2017
Fees Fees are generally much lower than that paid for active managers. Most ETFs attract fees that are a third to a fifth of the fees asset managers charge for unit trusts. Given the size of the industry, fees are very competitive, says etfSA's Mike Brown, adding it is difficult to get fees any lower due to fees charged by the JSE and index trackers. According to the etfSA website, investors using the etfSA Investor Plan platform to transact in ETFs pay a composite annual fee that covers the administration of their accounts, including: registration and custodianship of ETF securities; reinvestment of dividends; client reporting; issue of tax certificates; usage of the etfSA transaction platform; and compliance. The fees are 0.65% for a total investment per fund of up to R500 000, 0.5% between R500 000 and R1m, and 0.35% for R1m or more. You pay stockbrokerage fees of 0.08% for buying and selling. ■
has said: “The goal of the non-professional should not be to pick winners – neither he nor his ‘helpers’ can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 Index fund will achieve this goal.” This may be good news for the ETF industry and may be true for US investors. Laurie Wiid, director at NFB Financial Services Group, says investors should bear in www.fin24.com/finweek
Shutterstock images
There are a number of investment trends which point to increased interest in ETFs. Chief among these is robo-advice and AI (artificial intelligence) investing, as these are likely to generate ETFs as a good option after assessing costs. Botha says robo-advice has not had the uptake everyone thought it would as yet, but as banks and investment groups launch robo-advisers, the uptake of ETF-based investments should be big as they are an easier and more cost-effective way of investing. Meyer says that “it is quite simple for roboadvisers to calculate optimal portfolios utilising ETFs as the underlying building blocks for investors, as ETFs give simple lowcost exposure to the various asset classes required, and can be purchased on an exchange in relatively small quantities”. “AI investing includes the use of various algorithms to achieve a specific trading output,” says Meyer. “ETFs facilitate the ability of these algorithms to allocate trades to sectorspecific investments through the trading of one or more ETFs, which will give the broader exposure required. Ever-present marketmakers in the ETFs ensure that trades can be executed timeously.” While it is in its infancy in SA, ETFs seem to be the preferred option for robo-advisers globally as they are simple to understand and give investors immediate access to certain asset classes, says Brown.
Supplied
Robo-advice and AI investing
What are they? ETFs are a collection of assets traded as a single unit on the stock market. These can be an index, commodities or bond or money-market investments, and you essentially own a small piece of these without actually owning any of the underlying shares. They allow you to have a portfolio of shares without buying each share. ETFs are not meant to beat the market, they simply track it.
Images: Gallo Getty Images
“The trade is in rand and through the ETF structure the funds are externalised using a much more cost-efficient exchange rate than investors can get from their banks.”
cover story exchange-traded funds
ETNs Exchange-traded notes (ETNs) are similar to ETFs in that they track an index, commodity or currency. They are generally only issued by banks. According to Investopedia, an ETN’s value is affected by the credit rating of the issuer, and the value may drop if the bank is downgraded even though there may be no change to the underlying index. Mike Brown of etfSA says the bank’s credit rating has no effect. “It's the asset that’s held in the ETN. ETFs are held in a trust, so the
Warren Buffett CEO of Berkshire Hathaway
Laurie Wiid Director at NFB Financial Services Group
@finweek
finweek
liability is 100% covered by physical holding in the underlying asset. With an ETN, it is sometimes not as easy to hold the underlying asset, like corn or wheat, and these may be covered by, for example, futures or forward markets. This makes ETNs slightly more risky, but whoever is issuing that note is issuing off of a balance sheet, so you have to look at the underlying balance sheet of the issuer.” That is why ETFs are inherently more popular, says Brown.
mind that ETFs, particularly globally, have a “With index investing you are forced to hold different application to those available locally, everything, good and bad. Active managers which are skewed to a few counters. can identify better performers and track “For example, a local Top40 tracker fund will records speak volumes.” be dependent on the performance of A few percentage outperformance Naspers*, which accounts for a large can make a huge difference, he percentage of the index,” he says. says. “This warrants using active “This means you can do managers.” exceptionally well or badly Wiid says people now focus depending on the counters in on the fee-saving and tend the ETF.” not to look at the outcome Globally, an index-tracking and performance. ETF could be tracking 500 A large number of South shares instead of the 40 in African investors still put their South Africa’s Top40 Index, faith in active managers and where one share (Naspers) rely on their advisers to try to dominates. beat benchmarks. But ETFs are “We still believe in active gaining ground. “There management as there is “With index investing is much more awareness a good selection of active around ETFs and we are you are forced to hold inundated with enquiries. managers that do outperform and can still tilt a portfolio in The industry is starting to everything, good and favour of performing counters, gain momentum, but we are which is very different to an bad. Active managers a long way behind the active index tracker,” Wiid says. industry,” says Brown. can identify better Active managers can “Nevertheless, we seem to also be defensive and be inundated with enquiries performers and active, depending on the – even among pension funds circumstances, and optimise who never bothered with track records speak their portfolios accordingly. ETFs previously, we are seeing volumes.” “Passive investments do a rolling interest, which will have a role in a portfolio and translate into business being they do have a use,” he says, particularly if an directed to passive investments.” investor is looking for exposure to a certain These are the early stages of a swing in asset class, like property, for example, where momentum to passive investment. ■ they may not have specific knowledge or editorial@finweek.co.za insight to make specific investments. *finweek is a publication of Media24, a subsidiary of Naspers. finweekmagazine
finweek 7 September 2017
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in depth youth unemployment By Natalie Greve
S U C O F O T E M I T JOBS:
on South Africa’s staggering youth act imp le litt had e hav s job ate cre to So far, government’s attempts
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finweek 7 September 2017
INTERVENTIONS THAT HAVE TRADITIONALLY BEEN USED TO INCREASE YOUTH EMPLOYMENT BUT HAVE NOT HAD A SIGNIFICANT ENOUGH EFFECT:
vw
1. Protectionist measures that seek to ensure that local jobs are taken up by local people; 2. Training programmes, whether for hard or soft skills, a qualification or workreadiness skills; 3. Job search and matching interventions, such as those that seek to improve the efficiency of the labour market, make information more widely available, or help jobseekers find jobs more quickly; 4. Public employment programmes, such as the Expanded Public Works Programme (EPWP); 5. Entrepreneurship promotion, which seeks to help young people start their own businesses; and 6. Wage subsidies, which use public funds to reduce the costs of employing people or to increase their take-home pay. “While almost all have their merits, the capacity of each to expand its current impact on youth employment is limited,” the CDE report stated. “Indeed, to the extent that some do have the potential to make a big impact, they already consume significant resources and are unlikely to be able to expand dramatically without serious consequences for the quality of the work they do.”
But according to the CDE, SA consistently violates these requirements to economic growth. It listed familiar barriers to growth – uncertain policy, intrusive regulations, sovereign credit downgrades, the cost of economic infrastructure, expensive inputs and fragile labour relations. “Achieving faster, more labour-intensive growth would transform South African www.fin24.com/finweek
www.cde.org.za
SOURCE: CDE
Images: Gallo Getty Images
s
outh Africa’s piecemeal approach appears to have had a real impact on the to its youth unemployment overall unemployment rate and that a larger issue appears to be having little collaboration was required. real impact, after an August “In South Africa, the problem of report by the Centre for Development and unemployment in general, and youth Enterprise (CDE) delivered a pejorative unemployment in particular, is so multicritique of government’s fiercely defended faceted in its nature that it cannot employment policy, laying at its door the realistically be dealt with in any singular responsibility of rendering some 12.1m young manner or approach. people – nearly 48% of all those between “It will necessarily involve different the ages of 15 and 34 – unemployed. stakeholders, including government, CDE executive director Ann Bernstein education and business, working together said at the launch of the findings in to foster a diverse range of plans to be Johannesburg that the unemployment implemented in unison, with a view figures were a “damning indictment” of to achieving, at first, a reduction in existing policy, which placed emphasis on unemployment rates, and ultimately an a high-wage, high-skill job model that had increase in employment rates,” he asserts. “failed dismally”. The extent of SA’s youth unemployment Labour-intensive economy crisis necessitated a dramatic rethinking, According to the CDE, accelerating as programmes that looked economic growth, especially in to create jobs numbered in labour-intensive activities, as the tens of thousands are well as the halt of any policies too insignificant to impact that aim to slow job destruction meaningfully on the 7.5m young but have the effect of slowing people who are neither employed job creation, are the only nor receiving education, she said. sustainable strategies that will “If we are to move the dial, dent unemployment figures. Ann Bernstein the country needs system-wide Central to achieving this is Executive director reforms that produce accelerated the placement of the growth of the CDE inclusive growth that is urban-led, of labour-intensive sectors private-sector driven, enabled by a smart of the economy at the centre of SA’s state and targeted at mass employment. development strategy. The country’s What matters is not the size of the most important labour-intensive export employment-generating projects, but their industries are the light manufacturing quantity,” noted Bernstein. of clothing and electronics as well as toy Based on the figures reported, it’s not assembly, agro-processing and tourism. difficult to see how a handful of initiatives Job creation is driven by the same things that target tens of thousands of unemployed that drive economic growth: improving the are unlikely to make a measurable difference business climate to increase investment, to aggregate employment. lowering the costs of doing business and Werksmans Attorneys senior associate building social and legal institutions that Dakalo Singo agrees, telling finweek that no allow firms that produce goods and services single youth or general employment project at competitive prices to prosper.
in depth youth unemployment
S N O I L L I M E H T N S O s, drastic reforms are needed unemployment rate. According to expert society and its prospects: it would increase employment, reduce poverty, expand tax revenue and make possible the fulfilment of the promises to which we have committed ourselves in the Constitution,” Bernstein noted.
to create jobs for millions.
FINDINGS FROM THE REPORT: ■ Collating research with information gathered from
educational institution or engaged in adult basic education.
municipalities, experts and academics, the CDE report found that by the end of 2016, only 6.3m of the just over 20m young people in SA were employed. ■ Of those who were not economically active, 5m were still in school and around 1m more were in some form of
■ 3.7m young people were unemployed but looking
for work – the definition of unemployment used to calculate the “narrow” unemployment rate – while 2.1m were unemployed and no longer looking for work. The latter group is considered “discouraged” workers.
Reducing the jobs cost To achieve this, the CDE proposes something potentially controversial: impose policy reforms that directly reduce the cost of employing people, help to lower the rate of growth of employment costs and reduce any subsidies paid to capital-intensive firms, industries or activities. “Existing labour law tends to raise the cost of employment by creating wagesetting mechanisms that are biased to raising wages faster than productivity growth. Reforming these mechanisms remains a key goal, but, at the minimum, we should avoid imposing new costs on employers in the form of dramatically higher minimum wages, restrictions on the use of ‘labour brokers’ and the like,” it states. Singo is less dismissive of SA’s proposed minimum wage, but believes it hinges on the provision of appropriate internal exemptions and proposed phasing-in, which may be used by certain employers under certain circumstances to alleviate the effects of the increased costs of doing business. Bernstein meanwhile stated that no plausible single project, initiative or programme currently exists that stands a material chance of dramatically reducing the number of those not in employment, education or training (NEETs) in the short term. Overall, about 7.5m young people, or nearly 40%, are so-called NEETs. For example, government’s arguably most ambitious and well-run programme, the R9bn Jobs Fund, aims to create only 150 000 jobs over its as yet undefined @finweek
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finweekmagazine
6.3m
YOUTH AND LABOUR MARKET (4TH QUARTER OF 2016)
3.7m 2.1m
20m
2m ±6m in school and other education or training People aged 15 to 35
Employed
Unemployed
“Discouraged workers”
Not economically active
SOURCE: CDE 2017 based on data from StatsSA
lifespan. Similarly, when first proposed in 2011, the National Treasury calculated that the youth employment tax incentive, or the youth wage subsidy, would create about 178 000 net new jobs in a three-year period, at an estimated cost to the fiscus of R5bn over three years.
curriculum, in particular that of the TVET courses, Thero Setiloane, former CEO of Business Leadership South Africa, said in a recent note for McKinsey. “The business community knows which skills it needs and what it takes to make someone employable. Training programs must be tailored to demand. If this doesn’t Setting the curriculum happen, government will be spending On the education front, money in vain,” he advised. “Training programs the CDE called for a focus Singo said that tertiary on improving the quality academic institutions often must be tailored to and throughput rate of neglect the importance tertiary institutions and demand. If this doesn’t of their role in preparing training colleges rather than graduates to be work-ready, happen, government and instead focus on overly on increasing enrolment, as well as ensuring that academic and researchwill be spending Technical and Vocational intensive teaching, and on Education and Training the number of graduates money in vain.” (TVET) courses are more they produce yearly. The closely aligned with the needs of industry. result is that graduates are not as workThis can be achieved if the business ready as they are required to be for their community works with government in the chosen professions. ■ development and adaptation of the school editorial@finweek.co.za finweek 7 September 2017
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on the money
THIS WEEK: >> Classic cars: Old bloke’s hobby or genuine investment? p.40 >> Technology: SIM-swap fraud on the rise p.42 >> Management: Letting go of your business p.44
ENTREPRENEUR
By Jana Marais
Getting South Africa’s finest wines on the road Eighteen months ago, Cape Wine Master Debi van Flymen decided to turn her love for wine into two successful businesses.
a
s a trained chef and owner of a successful catering company, Debi van Flymen knew she wanted to leave this line of work to pursue wine full-time. She spotted a gap in the market to build a unique wine distribution business. Leveraging her network of contacts in the industry, she launched DvF Wine Distributors, which currently represents 13 wine farms in the Gauteng market; and GrapeSlave, a wine events company.
What did you do prior to starting your wine businesses? I moved back to South Africa 14 years ago, and started a catering company called Culinary Productions. But I’d always been fascinated by wine. I started doing courses through the Cape Wine Academy. From the moment I did the introductory course, I knew I wanted to be a Cape Wine Master. One of the things that attracts me most to the world of wine, is that wine is living, breathing, evolving and you can know a lot, but you can never know everything.
How did you get into the wine business? Before I even qualified as a Cape Wine Master, I was given the opportunity to join Wine Cellar, which was looking to expand into Joburg from Cape Town. In fact, Wine Cellar was a client at my 38
finweek 7 September 2017
former Culinary Productions venue, which became a home for many winemakers because it wasn’t tied to any specific allegiance. It didn’t have a wine list; it was a place where people could feel completely independent. So a lot of the winemakers from the Cape with whom I became friendly used to come and do their events at our venue. It was great to build relationships in the industry.
You founded DvF Wine Distributors about 18 months ago. How did this come about? I really enjoyed working with Wine Cellar, learning from and tasting regularly with their managing director Roland Peens. Wine Cellar later decided to follow a different strategy than the one I personally wanted to follow. I crunched some numbers and started drawing up a business plan, fleshing out what I thought the industry could look like. I developed a series of financial models, and began thinking about the way I wanted to develop the wine industry in Gauteng and beyond. I knew that in order to make it work, I had to have buy-in from people who had top-quality wines and the same philosophical approach. I didn’t want to have a portfolio where wines competed for shelf space. As I started to have conversations with people, and started to
THE GRAPESLAVE GUIDE TO DRINKING WINE
EXPERIMENT “That’s how you find out about what’s new and happening and exciting. If, for example, you really like a Chardonnay, then the next time you go to the liquor store choose a Chardonnay you’ve never heard of before.” DON’T BE BLINDED BY STICKERS “Consumers make assumptions that the wine must be really, really good if it’s got that many stickers on the bottle. But the top-100 sticker doesn’t say, ‘The top 100 out of the X number of wines that were entered into the competition.’ It is very misleading.” DON’T BE A PRICE SNOB “You can’t equate price to quality because there’s really good quality wines at all price points.” USE GOOD GLASSWARE “Glasses do make a difference. Try to use thinner glasses in general with a tulip shape to best express the wine.”
www.fin24.com/finweek
on the money entrepreneur
Debi van Flymen Founder of DvF Wine Distributors
realise that this could actually happen, I resigned and was able to procure the first four wineries to distribute.
What makes DvF Wine Distributors different from competitors? Most wine distribution companies do not own the stock; they have stock on consignment. The billing is generally done by the farms, and the farms hold the book collecting debts. I decided to build a robust distribution business, buying the stock from the farms and thus holding the book directly and allowing the farms to focus on wine. I realised that with these kinds of terms, I had the potential to manage and grow the relationships better. My backside is on the line every single day.
How did you fund your business? Lots of industry colleagues said to me there’s no way I can build a new distribution business without having millions of rands to buy stock. I believed I could leverage the relationships I had with the wineries, show them that I understood the cycle well enough, and that I had enough measures in place to collect and control the credit that we’re issuing to the trade [liquor stores, hotels, restaurants, etc.]. It didn’t take a fraction of the capital that most people thought it would. I started simply with my savings and a small loan. It’s been tough, and at times we’ve had very challenging cash flow concerns, but the business has been sustainable and is growing beyond expectations.
What are the biggest difficulties you’ve had to overcome? Women are not dominant in this industry; I face the challenge of this being a patriarchal industry. I am privileged to have some incredible mentors like Michael Fridjhon, Jeremy Sampson and Carrie Adams. One ongoing challenge is that we haven’t @finweek
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as an industry learnt to pull together. If you look at Brand Australia, for example – the winemakers speak with one voice about proudly being from Australia and making Australian wines. There is this cohesiveness within the industry which we lack in SA and could benefit from tremendously.
I’ve sold X amount!” My dad never cared about how much I sold; he made me realise it’s about the profit. We’ve seen a lot of businesses that don’t understand within their own business the difference between a margin and a mark-up. Life is about playing the margin.
What has been your biggest mistake?
What are your non-work habits that help you with your work/life balance?
To run out into the business at full tilt “Sell, sell, sell, sell!”, and then four months in, I realised I had been doing a great job selling, but people had not been paying their bills timeously. I hadn’t paid as much attention to the collecting as I should have. I didn’t anticipate that I would grow this business as quickly as I have. Growing without putting some of those processes in place has at times been extremely painful. Now we have a dedicated staff member handling this – much better than I ever did.
How do you grow sales? If you ask the biggest distributors in the business how they grow sales, I bet they’ll say “put more reps on the road”. But I believe it’s relational. I believe it’s in knowing the wines and knowing the customers and listening to the customers, and I do think it’s something we do exceptionally well.
How do you keep up to date with what’s new? This is one of the most challenging parts of my life. I read constantly; I have to build time into my schedule. I do a fair amount of travelling and I taste whenever the opportunity arises, and I taste things far afield of my own portfolio. If you don’t do that, then you don’t know what’s happening around you or in the industry and you start to lose perspective.
What is the best business advice you’ve ever received? I can remember saying to my dad in the past, even before this business – “Dad,
I love the bush – it’s the one place in the world where I feel my batteries get recharged. I try to make time for my family, and I like to walk. I like exploring; I like history; I love art and art galleries. I look at wine in terms of not just the science of it, but the art of it. I love reading. I just finished Gary Vaynerchuk’s new book (#AskGaryVee: One Entrepreneur’s Take on Leadership, Social Media, and Self-Awareness). It should be required reading for every business school student in SA and every board member for every company in every sphere. I also recently finished Tim Ferriss’s new book (Tools of Titans: The Tactics, Routines and Habits of Billionaires, Icons and World-Class Performers). And I just read the book Natural Wine: An Introduction to Organic and Biodynamic Wines Made Naturally by Isabella Legeron.
What is your five-year goal for your company? Financially, we hope to continue to grow organically on our upwards trajectory, keep our margins healthy and expand opportunities for our producer portfolio. I also want us to be known as the best wine distributor in the business. When I say best, I mean not only by providing the highest levels of service, but being known as the people who are the resource or knowledge base in the industry. I’d also like us to be known for having the best portfolio in the business. ■ editorial@finweek.co.za finweek 7 September 2017
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on the money motoring By Glenda Williams
Classic cars: Old bloke’s hobby or genuine investment? Is a car an investment? Not always. But over the last decade, growth in the value of rare cars has been phenomenal.
t
he notion of a car as an investment, or as appreciating asset, is perhaps a contradictory one. After all, the average car depreciates by around 25% annually. But some, depending on uniqueness and scarcity, appreciate almost from the get-go. Others do so with age. Often “objects of passion” that are bought with scant thought for return on investment, these splendid but mostly exceedingly expensive classic cars have, more often than not, been the preserve of “mature” high-net-worth individuals. But today the younger generation is also along for the ride.
The classic car market Generally accepted as one that is older than 20 years or considered collectable regardless of age, a classic car, say experts speaking at the Value in the Classic Car Market (VCCM) conference held at Sun City in August, is one that has reached its original sales price plus inflation. VCCM specialists say that irrespective of how many times the odometer has turned over on a truly old classic (like pre- and postwar models) this makes little difference to the value. The opposite is true for new collectable supercars, those with delivery mileage deriving the best values. South Africa has a strong classic car culture and can boast of some rare and sought-after classics. Many, though, have left our shores. SA is a hunting ground for collectors looking to buy good-quality cars and take them abroad, says Tommy Roes, managing director of The Carfinders International, a company that sources exotic and collectable cars for local clients. The net effect of this is that it has driven local prices skyward. “There has been a huge uptick in local prices, Jaguar E-Type at Jaguar’s ClassicWorks facility in the UK.
Tommy Roes Managing director of The Carfinders International
Ferrari’s entry-level car was sniffed at for decades by Ferrari aficionados, but today a Dino could come with a ticket price well north of
R5m. Resto-mods:
Saving cars from the scrap heap? Older generation models are also evolving into a new breed of car, with owners doing exactly what most classic car experts who place emphasis on originality and authenticity caution against – ripping out original items. A “resto-mod” might look like the original, but isn’t. Under the skin all the old bits have been replaced with modern parts and new technology – a method favoured particularly by members of the younger generation who require a reliable, usable car. Only time will tell how the value of these cars will be affected.
so much so that local prices of rare, soughtafter cars are often now higher than they are abroad,” Roes tells finweek. He cites an example of a Ferrari Testarossa recently selling for the equivalent of R2.5m-odd in the UK, and points to the improbability of acquiring one locally for under R5m. But a global softening in the collectable car market has meant that exporting and prices have cooled. The classic car market had become speculative and overpriced and the correction was necessary for the long-term health of the market, Roes says. That correction shifts the balance in favour of the buyer.
What makes a car collectable? Rare or exotic cars, both old and modern, those that are scarce due to their age or production numbers as well as open-top models are considered highly collectable. The lower the production number (generally under 1 000), the more collectable the car. According to the Historic Automobile Group International (HAGI) Index, sub-1 000 models produced in the 1950s and 1960s have registered the highest five-year price change at 280% with pre-war models registering the lowest at 130%. Some very rare and special cars like the Ferrari 250 GTO rarely come onto the market. Apart from two prototypes, only 39 of the legendary coupé were produced. One sold in 2014 for $38.1m, to date still the world’s most expensive car. The Ferrari badged simply as the “Dino” is currently one of the hottest properties in the TOP-PRICED MODEL SOLD AT AUCTION (From 10 key collectors marques*)
Marque Ferrari Mercedes-Benz Jaguar Alfa Romeo AC/Shelby Aston Martin McLaren Ford Porsche Bentley
Model & year 335 Sport (1957) W 196 Grand Prix (1953) D-Type (1955) 8C 2900B Lungo Spider (1939) Cobra 260 (1962) DB4 GT Zagato (1962) F1 LM (1998) GT 40 (1968) 956 Le Mans winner (1982) 4.5 litre Blower Birkin (1929)
Price £24.7m £18.8m £16.7m £15.6m £10.5m £9.4m £8.8m £7.0m £6.5m £5.1m
*Prices converted to sterling at exchange rate prevailing at time of sale.
SOURCE: HAGI
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on the money motoring SA’s oldest Beetle, a 1949 model with split rear window.
The Dino 246 GTS, prior to its ground-up restoration.
classic car world. Ferrari’s entry-level car was sniffed at for decades by Ferrari aficionados, but today a Dino could come with a ticket price well north of R5m. Top collectable cars today include the Mercedes Pagoda SL, Ferrari 308/328 and Jaguar XKE. Uniquely South African classics like the Ford Capri Perana, Ford XR8 Sierra and Alfa Romeo GTV6 3.0L are now highly valued both locally and internationally. In the UK, the VW ‘Kombi’ and Campervan are gaining the most value, while the VW Beetle is not far behind. Unsurprisingly, the SA market often mirrors UK trends. Interest in less exotic or glamorous cars like the Kombi and Beetle demonstrate that even models produced in higher volumes some decades back are today beginning to become more valuable as their remaining numbers decline. And these “modern” lower-end classics are a more affordable route for ordinary enthusiasts. ■
Classic cars as an asset class The collector car market has evolved from a hobby made up of collectors and enthusiasts to a highprofile industry now recognised by sophisticated collectors and investors as an alternative asset class. Aside from buying a classic car outright, fractional ownership or investment into a car fund portfolio have emerged as platforms for acquiring or sharing in a classic or collectable car and its potential proceeds. But classic specialists are quick to caution about confusing “collecting” with “investing”, the downside of which they say can be significant. “Sometimes what you don’t know [about the car as an investment] is more important than what you do know” [about the car as an object of passion], says a car fund specialist. Leon Strümpher, portfolio manager with Sanlam Private Wealth, says luxury items like art and classic cars are an important part of diversifying the portfolios of high-net-worth individuals (HNWIs). “Luxury investments like art and cars have a very special place in a portfolio. They need to be looked at and taken seriously,” he says. But, he adds, if a luxury “investment” does not return something better than prime plus inflation, then it’s not an investment. Investing in a classic car can be a bit of a ride into the unknown, so indices like HAGI and Hagerty that monitor valuation trends in the classic car world are vital for providing reliable data for would-be collectors or investors.
Better than gold? The growth in the values of classic cars has been staggering over the past decade. Over the last 10 years,
editorial@finweek.co.za SUPERCAR PERFORMANCE
classic cars have topped the Knight Frank Luxury Investment Index posting a return of 362%, outpacing the 195% posted by gold and 82% by equities (JSE All Share Index). Performance, though, has plummeted over the past 12 months. Still, while the Porsche marque dropped 0.1% in value in the last 12 months to May 2017, the Ferrari and Mercedes-Benz marques have grown by 1.6% and 16% respectively, according to HAGI. Experts expect the values of special, iconic cars (perhaps 1% to 5% of the market) to continue to rise due to their finite numbers and increasing demand for them.
Car funds Car funds, like those offered by Chrome Strategies Management, invest in some of the world’s most iconic cars, relying on appreciation in value to generate returns. The minimum investment requirement of many funds − generally $100 000, €100 000 or £100 000 – is daunting for non-HNWI investors. Of more concern is the lack of transparency around many so-called car funds. “There are platforms that call themselves funds but are not in a true sense actively managed portfolio funds,” says Tommy Roes, managing director of The Carfinders International. Unlike countries like the UK and US, South Africa does not currently have a car fund that allows for participation by local investors. But one is in planning. In development is the TCF Private Equity fund, an opportunity for local and international investors to participate, with limited liability, in an actively managed, returns-based portfolio of collectible cars. ■
(Price increase since new)
Performance % 1 000% 300% 250% 100% 60% 50% 30% -30%
KFLII PERFORMANCE VERSUS OTHER ASSET CLASSES (TO Q1 2017)
600
FTSE 100
@finweek
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KFLII**
Cars
Gold
400 200 100 0 2007
SOURCE: HAGI
PCL*
2009
*Knight Frank Prime Central London Residential Index
2011
2013
**Knight Frank Luxury Investment Index
2015
2017
SOURCE: Knight Frank Research
finweek 7 September 2017
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Images: Supplied
Year/s (1992-1999) (2013-2016) (2002-2004) (2010-2015) (2013-2015) (2003-2007) (2009-2011) (2007-2009)
Index (Q1 2007=100)
Model McLaren F1 Ferrari La Ferrari Ferrari Enzo Mercedes-Benz SLS Porsche 918 Porsche Carerra GT Aston Martin One-77 Lamborghini Reventón
on the money technology By Lloyd Gedye
CELLULAR TECHNOLOGY
The rise of SIM-swap fraud
t
his February I found myself in this weakness to read consumers’ SMS Block C of Pinmill Farm, which messages, which made one-time-pins sent forms part of the Independent via SMS less secure. Communications Authority of South In 2016 the banking ombud received Africa’s (Icasa’s) Sandton head office. 138 complaints about internet banking The reason? The regulator was fraud involving SIM swaps. By the end of conducting public hearings as part of its the first half of 2017, it had received 160 Number Portability Inquiry. such complaints; this is clearly a form of MTN was represented by Jeff Blake, who fraud that is rapidly on the rise. maintained that there was a major problem But this is not just a local problem. with “unauthorised” and “illegal” porting. According to The New York Times, the Blake argued for the US Federal Trade Commission, In 2016 the banking ombud received introduction of an SMS whose chief technical officer notification that is sent to a was himself a target of such consumer, asking them to a scam, reports that such confirm the port request as an incidents have increased from 1 extra safeguard. 038 cases in January 2013 to 2 complaints about “There is nothing worse than a 658 cases in January 2016. internet banking fraud involving SIM swaps. By frustrated customer or consumer The newspaper reported the end of the first half of who finds out he has been ported that most often those targeted 2017, it had received 160 without his consent,” Blake told the are individuals with valuable such complaints. hearing. “Your SIM card is tied to online banking accounts, your life. How can it be taken away from you?” most often involving holdings in virtual Blake’s comment underscored currencies like Bitcoin. something that I had been concerned Bitcoin entrepreneur Joby Weeks is about for a while. As we use our phones in quoted in the article as saying: “Everybody more and more aspects of our lives, I know in the cryptocurrency space were they not becoming a giant has gotten their phone number security risk? stolen.” Once someone has Getting back to South control of your phone Africa, last October or SIM card, to what Rapport stated that extent can they control the Hawks were your life? investigating the News reports from possibility that a the past two years syndicate had gained make it clear that the SIM access to Absa clients’ card has become a vital online banking details, and tool for online banking fraud were busy stealing millions syndicates. In May this year the from these accounts. news site MyBroadband.co.za reported The newspaper said that there were that there was a big security flaw in cellular 36 similar cases in which Absa customers’ networks and that this flaw was being money was transferred to a Capitec exploited for online banking fraud. account, after SIM-swap fraud took place. The tech site identified the flaw as That month it was also reported that a being in international telecoms standard crime syndicate had infiltrated Vodacom Signalling System № 7 (SS7) and said this in order to perform SIM-swap and internet issue had initially been flagged as early as banking fraud. It was reported that Vodacom 2007. It reported that hackers could use call centre agents had been recruited to
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help with illegal SIM swaps. The telecoms operator had launched an investigation. In April attorney Johan Victor publicly stated that crime syndicates had infiltrated banks and mobile operators in SA, and were assisting in SIM swaps and online banking fraud. Victor was representing a group of people who had lost millions due to internet banking fraud. In July it was reported that a foiled attempt to steal R100 000 from the Absa account of a customer, which involved a SIM swap of a Vodacom number, resulted in a R26 000 settlement. Vodacom called the payment a “goodwill gesture”. A week later Rapport detailed an internal Vodacom investigation that had found that some of its agents worked with a crime syndicate, operating from a Johannesburg prison, to perform SIM swaps and commit internet banking fraud. The investigation found that the login details of a Vodacom agent had been stolen by another agent, who had used it to log into the system and perform SIM swaps. While this news of ongoing online banking fraud in SA made headlines in July, Icasa released the report from its public hearings into number portability from February. The report states that the current system to validate port requests from prepaid subscribers may not be secure enough. It also says that international experience suggests that it would be beneficial to add another security step to the existing process that would confirm authorisation of the port by the subscriber. But Icasa said mobile operators disagreed on the best way to ensure the port requests are authentic and come from the subscriber. Some suggestions have included an extra confirmation SMS and a one-time pin. But considering what has been reported in the cases of online banking scams that rely on SIM swaps, will these measures really protect the public against fraud? ■ editorial@finweek.co.za www.fin24.com/finweek
Gallo Getty Images/Nadine Hutton/Bloomberg
Increasingly, criminals are using fraudulent SIM swaps to access consumers’ online banking accounts.
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on the money management By Amanda Visser
How to emotionally detach yourself from your business The majority of entrepreneurs will eventually reach a point where they have to leave the running of their businesses to someone else. This often causes great emotional upheaval, but there are ways to make this transition easier.
f
or many small-business owners or company leaders, succession planning is almost like planning the funeral of a healthy family member – it just never seems to be the right time for it. Discussions about succession planning mainly cover issues like the timing, who is a good fit to take over, the engagement with employees and the financial details of the handover. Yet, very little is said about the emotional transition the business owner or company leader is undergoing when having to hand over a dream that has been built and nurtured over many years. Timothy King, life coach at Lead Life Coaching, says those affected usually go through one of two processes. Some people are prepared to move on and are even excited about opening a new chapter in their lives. Others may be fearful and unsure about what the future holds. Age can also have an impact – many older people may struggle with the notion of transitioning from a role of respected leader to putting the reins into someone else’s hands and possibly embarking on a new venture.
What now?
Gallo Getty Images
The majority of people who reach this point in their lives question whether they have the strength, capability or creativity to compete in a new market, says King. Stephen Sheinbaum, founder of funding company Bizfi, remarks in an article published by Entrepreneur magazine that more than 50% of all small-business owners in the US are over the age of 50. One difficult choice that the business owner must contend with is who will take over from them. Will it be a family member or should an employee within the business step into their shoes?
Timothy King Life coach at Lead Life Coaching
“Making the transition will require the support of family and friends, especially for someone who seems trapped in his business or career and has not led a balanced life with external interests.”
Emotional transition Very little advice is offered on how the business owner should handle his own transition. King 44
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Stephen Sheinbaum Founder of Bizfi
says this change causes anxiety and even depression in a lot of people. This also plays a role when deciding whether to hand over the business, sell it or hold on for a little longer... “Many people simply freeze. They have become so used to a particular environment, they are unable to deal with a new one.” He says some are simply incapable of letting go. Their affirmation and their sense of identity are completely tied up in the business or in their leadership role. People in this position will most probably need some kind of “event” to let go – either a health issue, like a heart attack, or a partner threatening to leave because of the business leader’s inability to move on. “Short of that, the person will almost have to reinvent his identity.” This is a difficult thing to do at 60. However, the frustration, irritation and uncertainty about moving to the next phase persist. “Making the transition will require the support of family and friends, especially for someone who seems trapped in his business or career and has not led a balanced life with external interests,” King advises.
Loss of status In a study by the Center for Family Business at the University of St Gallen, Switzerland, and which was published by Credit Suisse, entrepreneurs were asked about their emotional responses to the issue of succession. Entrepreneurs who saw the time of transition drawing nearer, generally experienced a rising tide of contradictory feelings about letting go, and in extreme cases they even sabotaged the process. The reason for wanting to sabotage the process is the potential loss of status. As employers and active members of society, entrepreneurs enjoy a good deal of respect from others in the community. “They fear losing that respect. Status considerations are more prominent in rural areas, than perhaps in urban regions,” the study found. www.fin24.com/finweek
on the money quiz & crossword This week you can win a copy of Jonathan Jansen’s As By Fire: The End of the South African University if you get all the answers right. Enter by completing the online version of this quiz, which will be available on fin24.com/finweek from 4 September. Good luck! 1 Which Gupta brother has been caught up in racism allegations?
7 True or false? Trillian received millions of rand from Eskom.
2 True or false? The flag of Hong Kong features a flower.
8 Recently the Springboks played a match against the Argentinean national team, the Pumas. What colour were their jerseys? ■ Red ■ Green and gold ■ Black
3 True or false? The investment platform Easy Equities is currently owned by Sapphire Group.
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4 True or false? Dara Khosrowshahi has been appointed the new CEO of Uber.
A second important aspect is the incumbent owner’s fear that giving up entrepreneurial activity will mean “losing what matters most in life”. This fear arises because most entrepreneurs invest enormous amounts of time and emotional energy into their businesses, often to the exclusion of most or all other activities. “Even their private concerns generally take a back seat to serving the company,” according to the study.
Stepping back One way of making the transition smoother is for the business leader to take on a smaller role in the company’s day-to-day activities a few years before moving on. The person’s ability to let go of the control over decision-making will be critical. “It will require that he has confidence, faith and trust in the people who will be taking over his dream,” says King. According to the University of St Gallen study, if the owner deliberately takes a step back from the running of the business and delegates responsibility, the skills, abilities, structures and processes can be developed early before his departure. Ideally, an entrepreneur should set their sights on being able to say with pride at the end of their professional careers that they have left their business in good hands, the study advises.
5 Hokkaido is one of the islands making up which country? 6 In which US state is the city of Houston located?
9 What country does the boxer Conor McGregor come from? 10 Which US retailer does Amazon now own? ■ Costco ■ Whole Foods ■ Walmart
CRYPTIC CROSSWORD
ACROSS 1 Fillers used by the dentist? (8) 5 German soldiers knocking out British missile launch site (4) 9 Smirk when one escapes comparison (5) 10 Told about the rookie getting in a state (7) 11 Can nothing be found in Ireland? (4) 12 One who keeps china (8) 13 Select only the best spinach, cooked after dicing (4,3,6) 18 Bill among first to network (8) 19 Need to work on happiness (4) 20 General in a short combination suit (7) 21 Become very hot after row (5) 22 No affirmative answers back about meat substitute (4) 23 Altering another shape (8)
NO 691JD
DOWN 2 3 4 6 7 8 13 14 15 16 17
Drums into note claim to be Peter (7) Little medicine for the fool? (7) Criminal unclear I’d gone straight (13) Direction Conservative man brings to the party (7) Second-last flower in arrangement (7) Tie not intended, we’re told, for associate ( 6) Deliberates behind bars? (7) Spiteful about Her Majesty’s animal accommodation (7) A right start required to end liability (6) Swarm all over Harry (7) Primary class end points deducted from a learner (7)
Find your purpose People often confuse their role with their purpose. King says once they leave the role (as business owner or CEO) they fall apart because they have assigned all their self-worth and esteem to that role as opposed to their purpose. “They feel they cannot fulfil their purpose in any other role. If they understand their true purpose they can fulfil it in any other role they choose in life.” Understanding their purpose will make it easier to let go and to take on any new challenge, he adds. ■ editorial@finweek.co.za @finweek
finweek
Solution to Crossword NO 690JD ACROSS: 1 Designation; 9 Revisit; 10 Latin; 11 Vista; 12 Enslave; 13 Result; 15 Adhere; 18 Combine; 20 Reset; 22 Total; 23 Trade in; 24 Embrocation
DOWN: 2 Eaves; 3 Install; 4 Netted; 5 Tales; 6 Outrace; 7 Prevaricate; 8 Interesting; 14 Symptom; 16 Dormant; 17 Hectic; 19 Idler; 21 Steno
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45
Piker
On margin Office politics An employee goes to her boss to ask for a raise after two years with the company. The boss looks at her and says, “Because of the fluctuations in your position’s productive capacity as juxtaposed to industry standards, it would be monetarily injudicious to advocate an increment.” “I don’t get it,” she says. “That’s right,” the boss says. _______________________________________
Half the diners instantly get up and rush to the exit.
In brief The Guardian and The Telegraph compiled a list of the best jokes of this year’s Edinburgh Fringe festival: “Insomnia is awful. But on the plus side – only three more sleeps till Christmas.” – Robert Garnham
The senior manager of a company calls his deputy into his office. “Have you been fooling around with Janice from accounting?” the boss asks. “No sir,” the deputy replies. “Absolutely not!” “Good,” the manager says. “Then you fire her.”
“Relationships are like mobile phones. You look at your iPhone 5 and think, it used to be a lot quicker to turn this thing on.” – Athena Kugblenu
Smart thinking
“In the bedroom, my girlfriend really likes it when I wear a suit, because she’s got this kinky fantasy where I have a proper job.” – Phil Wang
A woman arrives at a restaurant, Gabrielle’s Kitchen, at lunchtime. It is very busy and she is told the next table will only be free in an hour. She holds her phone to her ear and says in a loud voice: “Girl, you won’t believe it, but your husband is having lunch with some woman at Gabrielle’s Kitchen!”
Verbatim
“I’m very conflicted by eye tests. I want to get the answers right but I really want to win the glasses.” – Caroline Mabey
“My hotel room was so small, I could barely open the Bible.” – Joe Sutherland “Netflix and chill. Because we can afford a TV licence and heating?” – Aatif Nawaz
Lester Kiewit @lesterkk Between Oubaas leaving Hilda and Chomp now at R4.79, where are we as a country? Michael Jordaan @MichaelJordaan It’s more important to do big things well than to do small things perfectly. Samantha Ruddy @samlymatters If your coffee shop has a passiveaggressive ‘No WiFi pretend it’s the old days’ sign, I’m gonna smoke in there and pay 50 cents for coffee. Adam Liaw @adamliaw I remember a time before Twitter when I had a range of emotions beyond exhausted disillusionment. Noah Smith @Noahpinion 15 years ago, the internet was an escape from the real world. Now, the real world is an escape from the internet. barton swaim @bartonswaim Dear friends older than 37: You don’t have to put two spaces after the period anymore. That was for the typewriter era. You’re free. Chocolate Papi @JoyBahats Am I the only Arsenal fan who wonders if fans can also go on loan? Kate Hall @KateWhineHall Advice for life: 1. Be kind. 2. Be brave. 3. Make sure your garage door is all the way up before backing out.
“It’s not enough to be busy; so are the ants. The question is: what are we busy about?” − Henry David Thoreau, American essayist, philosopher and historian (1817-1862)
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