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INVESTSA - South Africa’s leading investment publication for financial intermediaries. INVESTSA continues to be distributed alongside RISKSA, which is read by over 21 000 intermediaries each month and reaches over 7 000 brokerages.
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3INVESTSA
Sector report: Mining
gLoBAL eQUitieS in tUrMoiL? WHAt tHe HeADLineS Don’t teLL YoU
WHAt iS BeSt ADvice?
14
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S U B S C R I P T I O N S
CO
Nte
ntS
10 profiLeGary Palmer, CEO, Paragon Lending Solutions
12 ALternAtive inveStMentS focUS
22
3234
06 cfD’S riSe froM tHe ASHeS of SingLe Stock fUtUreS
HeAD to HeADChief Investment Officer, Blue Ink / Head: Investments, Sygnia Asset Management
18LotS of vALUe in tHe Mining SectorS - BUt tHe HArD pArt iS Mining it oUt20
privAte eQUitY A viable alternative investment08
08
06
INVESTSA4
Letter froM tHe eDitor
LETTER FROM THE
eDitor
Copyright COSA Communications Pty (Ltd) 2012, All rights reserved.
Opinions expressed in this publication are those of the authors and do not
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EDITORIAL
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INVESTSA, published by COSA Media, a division of COSA Communications (Pty) Ltd.
Investors are still shy of equities. It’s a pity as local shares on the JSE are offering more than decent returns, 5,74 percent over the first
quarter of the year. But there are many other ways to construct an investment portfolio using products that might be equity based, but have other redeeming features, at least that’s what is hoped for. This issue explores many of those options, and how they can be invested in. It’s a truly valuable edition for do-it-yourself retail investors and financial advisors.
Maya Fisher-French kicks off with an enlightening explanation of why contracts for difference (CFDs) are replacing the earlier darling of the market, single stock futures. For the right type of investor these could be a valuable addition to an investment portfolio.
Maya also takes a look at investment advice and the associated problems with products sold by tied agents of investment firms or providers of those still largely suspect products, annuities.
Alternative investments are very much the theme of this edition. Carla de Waal of Novare Investments tells us of the value of fund-of-hedge funds in a portfolio, while Soula Proxenos at International Housing Solutions takes a look at the rush into private equity investments in Africa.
I dip my toes into private equity investments as well, deciding that
for the more wealthy investor it’s definitely an investment that should be included in a diversified portfolio.
I also take a look at mining shares, concluding that many offer much value but the problem is finding the best mining shares. This is where the well-informed advisor can play an import role for clients.
Gold is on every one’s mind. Merina Willemse at the Efficient Group Ltd presents a convincing explanation for the why the gold price is going up, and why it remains a good investment. Peter Major, mining consultant to Cadiz Corporate Solutions, gives the expert view on why investors should hold onto mining shares as an investment.
Other alternatives are explored as well. Mike Brown, MD of eftSA.co.za, offers tables showing how many ETFs and ETNs have beaten the JSE, while Mariette Warner of Absa Asset Management gives an overview of the listed property market. On the Profile page Gary Palmer, CEO of Paragon Lending Solutions, offers his advice for investors in commercial property and what they need to watch out for.
There’s a lot more good stuff to read. The advice will prove invaluable for investors and advisors looking beyond straight equity investments.
INVESTSA6
MAYA fiSHer-frencH
Since its peak in 2008, the single stock futures market has fallen from around R60 billion open contracts at any one
point, to around R2 billion today. Maya Fisher-French explores the demise of the
single stock future industry against the rise of CFDs and what it means for retail
investors.
CFDs rise From the ashes oF single stoCk Futures
There was a time, before the great financial crisis, that single stock futures were the belle of the ball – everyone wanted to dance. Allan Thompson, the then director of equity derivatives trading at the JSE, went so far as to predict that one day all traders would trade SSF in lieu of spot prices – single stock futures were the future and ordinary trades would cease to exist. After all why would somebody want to put all their capital into a share when they could just put down a deposit and leverage their position for even greater exposure; why buy R50 000 worth of Sasol when you could buy exposure to R500 000?
But then the great crash came and, although SSF can be used to hedge the market, most people were on the wrong side of the trade and significant losses were made. Absa’s unintended acquisition of stakes in Pinnacle Point, Blue Financial Services, Sekunjalo Investments, and ConvergeNet Holdings was one of the big news stories in 2009 when clients were unable to make good on their positions.
7INVESTSA
Although not good news for Absa, it highlighted the protection that investors had when trading SSFs. The fact that SSFs are regulated and traded on the JSE with major institutions acting as market makers has always been the major advantage of SSFs over CFDs (contracts for difference); as an investor you always knew that your trade would be honoured. CFDs, on the other hand, are effectively over-the-counter instruments and remain unregulated. As a result they did not attract the same level of interest as SSFs, despite the fact that they are possibly the superior financial instrument. Brett McLaren, South Africa’s joint MD of Saxo Capital Markets in South Africa, argued that this is all changing and CFDs are making a major inroad into the SSF market which is in part why SSFs have failed to recover even modestly, to their pre-crisis levels.
Brett McLaren and Richard North, working at Nedbank Capital at the time, along with Arthur Buchner from BOE, were instrumental in the creation of the single stock futures market in 2003. “At the time warrants were a big market but then they blew up. Banks were greedy and investors never understood the product,” said McLaren, who explains that the problem with warrants was that investors fell victim to price decay known as ‘theta’. The saying, “theta, theta profit-eater” warned against the fact that when the underlying share prices of the warrants remained constant, the price of the warrants still fell as they drew closer to expiry, due to the time value of money. “This left a bad taste for investors who had got raped on bank fees,” said McLaren. However, investors still wanted to find a way to have exposure to equities without having to put down all the cash. They also wanted a product that would allow them to make money in both a rising and falling market. But they needed something simpler to understand.
Single stock futures started to gain prominence in 2003. The investor has to pay only around 10 per cent of the actual value of the share yet has close to full exposure to the price movements of the underlying equity. Although investors would pay interest, which did reduce profits over time, it was more transparent and resulted in a far less aggressive price decay compared to an option which was used to structure warrants.
The one drawback of a single stock future is that the investor does not receive the dividend and it is this that has ultimately led to its fall in popularity and the rise of the CFD as a favoured instrument.
McLaren explained that because the investor will not receive the benefit of a dividend, the market maker for the single stock future factors in the dividend when making the prices. When dividends are declared, all things being equal the share price should fall by the dividend declared; however, the shareholder would be compensated by having received the dividend. As this was not the case for the SSF investor, the market maker would discount the price of the SSF to factor in the dividend based on forecasts.
But then the great crash came and, although SSF can be used to hedge the market, most people were on the wrong side of the trade and significant losses were made.
For example, if a single stock future traded at R10 and the analysts forecast was for a dividend of 50c to be paid, the market maker would discount the price of the SSF by 50c. If the dividend was not as forecasted, then either the market maker or investor would lose out. The investor would lose if the dividend was higher than expected as the share price would fall by a greater value and the market maker would lose if the dividend was lower than expected as it had offered a discount. McLaren said traditionally the market maker did off-market trades and kept records of dividends. If there were any changes in expectation around the dividend then the market maker would make an adjustment and correct the situation so there were no gainers or losers.
However, with the monumental success of SSFs, the JSE wanted to regulate the market and forced the market makers to go live on screen for transparency. McLaren said now the buyers and sellers became anonymous. As a result it became impossible for investors and market makers to balance the books on dividend payments as no-one knew who was selling to whom.
This also allowed all players to see the pricing of the SSF and therefore what dividend was being forecast. This opened up a massive opportunity for arbitrage if one market maker’s view on the dividend forecast differed from another. “The banks were now focused on making windfalls on the dividends and single stock futures were traded based on views on dividends. The man on the street got
clobbered. Historically we dealt with clients directly, if we got it [dividend] wrong, we would settle it. The open screen makes it impossible; you don’t know who you are dealing with,” said McLaren.
While investors became disenchanted by SSFs, the emergence of big players in the CFD market started to put this previously poor cousin on the map. Unlike SSFs which settle every quarter, CFDs – which are simply a contract to pay out the difference between two prices – is a one-day settling contract. Profit and losses are calculated and settled daily making the pricing extremely transparent and removes any potential price decay. Most importantly, the investor receives the dividend. McLaren argues that CFDs are far more transparent instruments, “Interest is transparent and you receive the dividend. Price discovery is transparent. The price it closes at is essentially your profit and loss. You don’t have the anomaly with potentially three months’ interest priced into the contract. It’s a very simple instrument,” said McLaren.
It is only because they are unregulated that they have not been as popular as SSFs. Until recently, CFDs have been run by fairly small outfits like Global Trader and Dealstream which have not had the large balance sheets to fund deals which have gone wrong – and there have been many cases where deals went sour. Global Trader’s London office was effectively closed down by a trader who could not meet a margin call; and Dealstream hit headlines in 2008 when dramatic falls in the share price of companies found traders unable to meet their margin calls.
McLaren said now with large market participants like the banks locally, and IG Markets and Saxo Bank internationally moving into the local CFD market and effectively underwriting the deals, the risk has dropped significantly for traders. Not only are there now large balance sheets underlying the trades, but the money and research that has gone into the trading technology has also reduced trading risk. Investors’ positions can now be closed before significant losses are made.
One of the drawbacks of trading over-the-counter is that the underlying share price was not tracked intraday. One bad day on the markets and a client can be wiped out, forced to pay in a massive margin. “Saxo Bank has developed systems that make sure that a client knows their profit and loss situation on a second-by-second basis,” said McLaren, who added that the system will actually close a contract before the client’s margin is wiped out and he goes into deficit.
With the risks around CFDs minimised and traders burnt by the arbitration of single stock futures, CFD s seem set to be the new preferred trading instrument – that is until an even better one is developed.
INVESTSA8
SHAUn HArriS
privAte eQUitY
A VIABLE ALTERNATIVE INVESTMENT
8
BY SHAUn HArriS
“Exit is one of the biggest questions we ask ourselves
as we enter into a deal. We try and
invest in businesses
that will have
strategic appeal to
a trade buyer.”
9INVESTSA
More investors have exposure to private equity funds than they realise. South African retirement funds are increasingly looking at private
equity as an alternative investment. These funds underscore just one reason why private equity has become not only a viable alternative investment, but also an increasingly sought-after asset class. Volatile stock markets and expected lower returns from equities have moved the investment spotlight to private equity. Investment styles differ between the private equity firms but in the main they invest in companies not listed on the JSE, or other stock exchanges in Africa where much of the focus is. These investments will often perform contra-cyclically to listed company shares.
Last month the Public Investment Corporation (PIC) said it would probably invest up to US$3.8 billion in private equity in Africa. One reason for this, said CE Elias Masilela, was because the PIC was looking for higher returns outside its home market in South Africa. “African markets are characterised by thinly listed equities. What will likely drive us going forward are private equity, developmental funding and property,” he said. Many investors and their financial advisers, though, will want to invest in private equity beyond a retirement fund. There is much that makes private equity attractive, particularly in current global and even local stock market conditions.
Private equity firm Actis says it plans to invest around US$300 million a year in Africa, with much of that going to bigger markets like South Africa. Last year, Actis was the lead manager in the US$434 million buy-out of South African company Tracker, which makes vehicle tracking equipment.
This is the type of investment private investors and financial advisers will be looking for but will often find difficult to access. Unlisted companies sometimes have over-the-counter (OTC) shares available, but these companies are in the minority and making an investment is often limited to institutional investors. A private equity fund then becomes the route into attractive private company investments.
Like equity fund managers, private equity managers will conduct due diligence examinations on unlisted companies that look worth buying. This will include the usual financial metrics like turnover, cash flow and sustainability of future performance. Unlike equity fund managers, though, they will not have to consider share price performance and valuation based on the stock market. Valuation will instead include the private company’s competitive advantages and the industry it operates in.
Once the investment is made, the private equity firm will back the acquisition, sometimes by providing capital if needed or by playing an active role on the board of the company if the percentage size of the acquisition is large enough. Once again the investment process will differ between different private equity firms but typically they are quite long-term investors.
Generally there are two exit strategies: the company will be listed on a stock market and an initial public offering (IPO) held for the private equity fund to realise its profit; or there will be a trade sale, sometimes back to the original owners of the business but more likely to a competitor in the industry.
“Exit is one of the biggest questions we ask ourselves as we enter into a deal. We try and invest in businesses that will have strategic appeal to a trade buyer,” said John van Wyk, co-head for Africa at Actis. “If you’ve made the right acquisition initially, there’s no shortage of potential trade buyers when you come to sell.”
This is where the financial adviser seeking a good private equity deal for an investor client comes in. They have to learn about the different investment styles of the private equity firms – there are about 40 in South Africa – and try and judge when they might exit the investment. It’s very much about getting into the rhythm of the private equity investor.
Alternatively, they have to learn to rock ‘n roll with the fund. The foreign US$200 million 8 Mile private equity fund has entered the market in Africa, owned and headed by Bob Geldof, the Irish former front man of the Boomtown Rats. Geldof is well known for the poverty relief
concerts he has arranged in Africa, most notably Live Aid in Ethiopia. His fund will probably be looking at similar types of commercial investments in Africa, and South Africa could also be on the stage (just don’t contact the Geldof fund at the beginning of the week. They don’t like Mondays).
The big question for financial advisers is how to get clients into a private equity fund. Some are limited to selected partners or institutional investors. When private investors are included it’s often at the top end of minimum investment capital, very much the high net worth investor.
But there are more accessible and affordable options. Old Mutual Private Equity looks after more than R12 billion in private equity assets. Some of its funds were launched to specifically target smaller retail investors. There’s the Old Mutual Private Equity Direct Investments that invests directly in private companies. Past acquisitions include well-known South African companies like Consol Glass, Life Healthcare and the Tourvest Group. However, it’s the Old Mutual Private Equity Funds of Funds that advisers should be looking at. As the name implies, it invests in a range of other private equity funds. There are three of these funds available, all open to private retail investors.
Ethos Private Equity, which is raising a sixth, US$750 million fund, also targets private investors, but very much in the high net worth category.
What sort of returns can investors expect from private equity funds? Certainly much higher than the stock market if the fund manager has made the right investment. Once again, though, returns will vary between the different private equity funds. Much depends on their investment goal and the investment time horizon.
Here’s an example. Ethos sold its remaining 12.4 per cent stake in Holdsport last month. Holdsport, which was listed on the JSE, had an IPO in the second half of last year. Investors will know the listed company through its retail distribution chains Sportsmans Warehouse and Outdoor Warehouse. Holdsport listed its shares in July last year at R31 and when Ethos concluded the deal on 3 April, it was trading at R41.95. That’s a return of around 35 per cent in less than a year. What investors must realise is that while private equity returns can be very attractive, some are higher risk than equity investments. It all depends on the private equity fund manager making the right investment.
Returns aside, private equity will add important diversification to an investment portfolio. It’s a growing asset class that investors and financial advisers need to consider.
“Ethos Private Equity, which is raising a sixth, US$750 million fund, also targets private investors, but very much in the high net worth category.”
INVESTSA10 INVESTSA10
profiLe | CEO | PARAGON LENDING SOLUTIONS
g A r Y P A L M E R C E O | PA R AG O N L E N D I N G S O LU T I O N S
11INVESTSA
“Commercial property investors must make sure that the building has good tenants with long leases
and should conduct careful analysis on tenants in terms of due diligence.”
1. You have been ceo of paragon for two-and-a-half years now. Has the economic turmoil over this period had any impact on your business?
The economic turmoil has negatively affected most businesses in South Africa over the last few years. The level of property developments has decreased over the last two years and property prices − particularly residential property prices − have dampened given the falling demand and over supply.
All lenders require activity in the market so naturally all lenders will do better in a better economic environment. However, due to the effects of the recession such as bad debts and increased regulations, many banks have reduced their level of lending to the market. There are still credible clients looking for funding who have been declined by the banks and as a result of this we have seen the level of deals doubling over the last year.
Surprisingly many of the deals referred to Paragon have come from the banks. I think the general acceptance of non-bank lenders has increased in the past few years and we can see this from the increasing number of referrals we are getting.
2. Has the current economic environment increased the need for asset-backed lending by companies?
Yes, definitely. There has been a noticeable increase in the level of credible non-bank lenders in South Africa, following the international trend in this direction. Banks are focusing much more on non-interest income and, when banks do lend, they assess deals in terms of serviceability and not the value of the asset. This shift in focus of the banks has led to an increase in asset-based lending globally and more recently in South Africa.
3. What do you think are the biggest challenges for the commercial property industry in the next 12 months?
I think the biggest challenge is to reduce the level of vacancies and keep existing tenants
happy in commercial properties. However, buyers struggling to get access to funding to purchase properties is also a concern at the moment. Furthermore, fundamentals are placing downward pressure on rentals and bottom line returns even at national level. As a result, vacancies could rise and we are not likely to see the escalations that we have seen in the past.
4. Do you think property still makes a good investment in the current climate?
Yes. Interest rates are at an all-time low. Prime is currently nine per cent and some commercial properties are yielding in excess of 11 per cent so there is positive gearing. However, one still needs to make informed decisions. As in the famous saying; “You make money in property when you buy not when you sell.” Therefore, it makes sense only if you are buying well. Commercial property investors must make sure that the building has good tenants with long leases and should conduct careful analysis on tenants in terms of due diligence.
5. How did you get into this industry and what advice would you have for someone entering it now?
After qualifying as a CA, I went straight into banking, working for Investec. It was here that I got involved in the property investment industry. My advice for people entering into property investing industry now (in terms of making good investments) is to:
• Ensure that you or your client has the money to put down a sizeable deposit.
• Conduct due diligence on property − especially in terms of understanding the tenant and the area.
• Use market information. There is a lot of information in the market about property, e.g. Rode report, Lightstone index, property valuers, etc. that provide very valuable market insight.
• Understand all the regulations that may affect the property such as the CPA, NHBRC, etc.
• Assess whether you are able to obtain bank funding.
• Start small if you haven’t been in the market already.
• Understand the cash flow of the property. Most of the income will service the loan so don’t expect to survive on the income from the property in the first few years.
6. How do you wind down from the pressures of your position?
I spend most of my free time with my family. I also enjoy playing sport – running, tennis and going to gym.
7. How do you define success?
I think success is when you can rely on your experience and instinct to make good decisions and set ambitious goals – and when you are prepared to put in the hard work that will be necessary to achieve that goal.
8. finally, if you had r100 000 to invest, where would you put it?
The first thing I would do is to speak to a financial adviser. Having done this, and because property is my game, I would probably use the money as a deposit to purchase a property.
INVESTSA12
Private equity investment in Africa
is rapidly gaining traction, as
rock stars and global institutional
investors realise the value and
potential of stimulating economic
growth in emerging markets.
Known for his global anti-poverty crusade
in which he asked rich countries to forgive
Third-World debt, it was recently revealed
that Irish rock star Bob Geldof had raised
$200 million for his 8 Mile African private
equity fund, aimed at promoting private
enterprise. “Africa is now a continent of
extraordinary business and investment
opportunity,” said Geldof in a statement.
“Private equity is one way to support the
enterprise and dynamism of the people of
the continent and help provide the jobs and
skills that are needed.”
Geldof’s announcement followed hot on
the heels of a study conducted by the Abu
Dhabi-based Economist Intelligence Unit,
which found that more than half of 158
institutional investors surveyed saw Africa as
the most attractive region to invest in the next
decade, with a third expecting to commit
at least five per cent of their portfolios to
the continent by 2016. According to the
survey, private equity and infrastructure were
expected to outpace commodities as the best
asset classes for investment in Africa in the
next three years.
“This study confirms our observations and
predictions over the past five years, since we
embarked on private equity investment in
the affordable housing sector on behalf of
global institutional investors in South Africa,”
said Soula Proxenos, managing partner of
International Housing Solutions (IHS).
IHS, one of the pioneers in private equity
investment in South Africa, recently reached
the milestone of committing R1.1 billion
in the development and construction of
affordable housing in the country. Proxenos
said that private equity investment in African
projects is rapidly gaining the deserved
recognition of being a valuable vehicle for
investors to reap emerging market benefits.
“While the private equity industry globally
is not yet well understood, the industry in
Africa has emerged as a leading example
of how investors can realise above-average
returns while at the same time providing
much-needed capital funding to developing
nations. It allows for capitalisation of
businesses and opportunities through equity
instead of debt – providing a potentially
significant developmental impact – while at
the same time offering investors good risk-
adjusted returns.
“In recent years, we have seen a clear trend
developing as investor appetite for Africa
grew. South Africa was considered the ideal
launch zone for entry into sub-Saharan Africa.
And according to research, over the past five
years, investors are increasingly doing this
through private equity funds.”
Proxenos concurred with the findings in
Into Africa: Institutional Investor Intentions
by 2016, which notes that the focus is no
longer on commodities, grants and aid, but
rather on investment in real economic growth
drivers. And urbanisation, greater consumer
spend and the rise of a new middle class
are among the notable factors that attracted
new institutional investments while equity
funding was the preferred vehicle to reduce
investment risk.
“While the appeal and prospects of investing
in Africa are greater than ever before, few
individuals or investors have the necessary
knowledge and insight to be able to safely
and confidently make direct investments into
global markets. This is especially so in the
case of emerging markets such as in Africa,”
Proxenos added.
“However private equity investment provides
flexibility, shared exposure, some liquidity,
professional management and an opportunity
to select partners with a proven local track
record in the chosen sector. In line with the
report’s findings, and should risk factors
be contained, we expect in the next five to
10 years to see an unprecedented influx of
foreign institutional investment into South
Africa and beyond.”
ALternAtive inveStMentS
Soula Proxenos | Managing Partner of International Housing Solutions (IHS).
Super rich and Super inveStorS Committing to private equity investment in aFriCa
“In recent years, we have seen a clear trend developing as investor appetite for Africa grew. South Africa was considered the ideal launch zone for entry into sub-Saharan Africa.”
13INVESTSA
Carla de Waal | Head of Fund of Hedge Funds at Novare Investments
hedge fundS – a long-term inveStment propoSition
ALternAtive inveStMentS
Instead of viewing hedge funds as
a separate asset class to long-only
equity and bond investments, these
strategies can be used as an extension
of the asset allocation process.
Different hedge fund strategies can be used
to reduce asset class risk in a portfolio,
helping it to withstand market storms. And
if capital is protected in periods of market
weakness, the portfolio will benefit from
positive compounding.
For example, equity long/short strategies
can be used in combination with long-only
equity to improve the risk profile of the total
portfolio that would lead to improved risk-
adjusted performance. Fixed income hedge
funds can be used in combination with long
bonds exposure to enhance performance in
different interest rate scenarios.
IN THE LONG RUN
Investors often underestimate the impact on
returns of the starting point of an investment.
Over the past 20 years, even with the luxury
of investing with a long-term horizon of five
years or more, there have been prolonged
periods of negative returns in the equity
market that would have had a severe
negative impact on the investment outcome.
Dividing the past 20 years into rolling five-
year periods produces a negative return
over the full five years 25 per cent of the
time in the case of global equities (MSCI
The World (net) index; January 1992 –
December 2011). However, an investment
in global funds of hedge funds (HFRI Fund
of Funds Composite Index; January 1992
– December 2011) delivered a negative
return only one per cent of the time in any
rolling five-year period.
Also, the maximum loss over any rolling
five-year period invested in the MSCI World
index is -25 per cent, in comparison to the
maximum loss by funds of hedge funds of
-3.7 per cent. So it’s clear that hedge funds
have proven their ability to preserve capital
during extended equity market downturns.
The historical performance of global funds
of hedge funds also shows that investors
enjoyed a similar return to being invested in
global equities over the past 20 years, but
with less than half of the risk, as measured
by the standard deviation.
STATE OF THE INDUSTRY
While global hedge funds had a
comparatively poor 2011, they still
outperformed equities over the past decade.
Local hedge funds, on the other hand,
performed well on both an absolute and
relative basis during 2011, beating equities
by a significant margin: the FTSE/JSE All
Share Index returned 2.6 per cent versus
the median SA single manager hedge fund
returning 8.8 per cent. Even more impressive
is the fact that, in most cases, returns were
produced at significantly less market risk
than with full exposure to equities. Net equity
exposures in the majority of local equity
long/short funds ranged between +30 and
+50 per cent throughout the year.
The vast majority of local hedge funds were
defensively positioned throughout the year
and, where positions were taken, these
were in defensive stocks, or alternatively
making use of derivative-based hedges to
reduce downside risk in a particular position.
Other hedge fund strategies, such as fixed
income arbitrage and multi-strategy, also
produced noteworthy returns for the year.
For allocators of capital, like funds of
hedge funds, these performances helped
multi-manager, multi-strategy portfolios
to continue producing solid returns at
very low levels of volatility. Assets under
management in global hedge funds have
risen past $2 trillion for the first time, and
HedgeFundResearch Inc. reports that hedge
fund launches in 2011 increased to the
highest level since 2007.
In South Africa, changes to Regulation 28 of
the Pension Funds Act are positive because
alternative investments now explicitly form
part of the asset categories that pension
funds can invest in. Hedge funds can now
comprise up to 10 per cent of a pension
fund’s portfolio, which should support
inflows into the industry.
Hedge funds should be considered during the portfolio construction phase as a useful investment tool to fine-tune asset allocation.
INVESTSA14
BLUe ink
The Blue Ink All South African Hedge
Fund Composite tracks the average
return of all single strategy local hedge
funds since the start of the first funds in
South Africa in 1999. Since those early
days, Blue Ink has been sourcing data of hedge
funds. Our first return track record of a fund starts
on 31 January 1999. Since then the number has
increased dramatically as the industry has grown.
Currently we include 95 funds in the calculation,
with the peak being 110 funds which was in early
2008.
A fund is included in the composite from the date it
becomes a public fund, i.e. open to the public for
investment. Certain fund managers run segregated
accounts or mandates for specific investors and
could therefore manage two funds with similar
mandates, returns and risk statistics. If such a
segregated account or mandate is set up with a
different name, we would include only one in the
composite. This avoids double counting of returns.
There are also numerous funds that have started
up and closed down over the years. We believe
that we have captured the vast majority of these
funds up to the date that the fund actually closed.
These funds include those that had significant draw
downs in 2008, as well as funds like Evercrest.
BLUe ink ALL SOUTH AFRICAN
HEDGE FUND COMPOSITE
“Certain fund managers run segregated accounts or mandates
for specific investors and could therefore manage two funds
with similar mandates, returns and risk statistics.”
Year 1999 2000 2001 2002 2003 2004 2005Average number of funds 1 2 4 8 18 33 48
Year 2006 2007 2008 2009 2010 2011 2012
Average number of funds 76 110 98 104 96 98 96
15INVESTSA
The vast majority of fund returns included in the composite are obtained from fund managers
directly; some historic data on closed funds were obtained from Riscura to ensure the completeness
of the fund database and to avoid survivorship bias where possible. The equally weighted average of
the monthly returns is calculated and shown as the Blue Ink All South African Hedge Fund Composite
(BIC).
The most recent performance shows that hedge funds reported an average return of 3.01 per cent
over the first quarter of 2012.
In 2008, of the 89 hedge funds in the composite, 66 funds reported positive performance over the
year, as the All Share Total Return Index declined by more than 23 per cent. This is because the
hedge fund industry comprises of a variety of investment strategies; some strategies are designed
to be lower risk while others are more risky. As a consequence of this, many hedge funds were able
to generate good returns and protect investor capital as markets declined. Hedge fund managers
typically share the portfolio and risk management skills of traditional fund managers but use
additional tools that lie outside the boundaries of the traditional fund manager’s arsenal. These
funds are not constrained by the many investment restrictions imposed by CISCA and can utilise the
full ‘toolkit’ of financial instruments to add value.
For the 12 months to March 2012, hedge funds on average reported a 10.5 percent increase in
return, outperforming the All Share Index, notably this outperform was achieved with much less
volatility. The standard deviation (volatility) on the All Share Index over the last 12 months was over
13 percent, while the same statistic for hedge was just over 2 percent.
The BIC reported a 9.10 percent increase over 2011. Notwithstanding the volatility observed in
capital markets, hedge funds managed to delivered positive real returns over a very difficult year.
Hedge funds portfolios typically are aligned with the prevailing risk-return profile of the market,
knowing that there will be many attractive periods in which to accept market risk and that these
periods have historically provided more than enough opportunity to capture strong returns with
subdued risk – the BIC shows evidence of this.
BIC ALSI ALBI STeFI
1999 48.34% 74.53% 28.63% 15.48%
2000 36.35% 0.73% 19.44% 10.77%
2001 35.29% 33.28% 17.92% 10.17%
2002 18.16% -7.67% 15.96% 11.57%
2003 23.57% 16.63% 18.07% 12.29%
2004 25.08% 25.44% 15.25% 7.98%
2005 18.92% 47.25% 10.77% 7.14%
2006 19.75% 41.23% 5.45% 7.42%
2007 15.61% 19.19% 4.25% 9.34%
2008 2.36% -23.23% 9.34% 11.70%
2009 15.92% 32.13% 5.91% 9.13%
2010 10.91% 19.69% 12.48% 7.92%
2011 9.10% 2.54% 8.82% 5.75%
2012(YTD) 3.01% 6.02% 2.35% 1.38%
BIC ALSI ALBI STeFIOne year Total return
10.55% 7.51% 13.15% 5.72%
One year Volatility 2.05% 13.01% 5.25% 0.04%Three year Total return
39.40% 78.39% 33.49% 21.81%
Three year Volatility 2.05% 15.09% 4.92% 0.33%
Best rolling 12 months since 2008 16.17% 48.30% 11.81% 11.81%
Worst rolling 12 months since 2008 1.07% -37.59% 5.72% 5.72%
A “hedge fund” is an investment strategy that can use all the tools available in modern finance to make money for investors. This is in contrast to the more traditional “buy-and-hold” strategies employed by typical equity, bond and cash managers. In general this allows hedge fund managers to be more effective at capturing returns and avoiding risks than their traditional counterparts.
A “fund of funds” (FOF) is an investment strategy that consists of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. This type of investing is often referred to as multi-management.
A fund of hedge funds (FoHFs) is a fund of funds that invests in a portfolio of different hedge funds to provide broad exposure to the hedge fund industry and to diversify the risks associated with a single strategy hedge fund.
Hedge fund investing can be more complicated than traditional investments. This is why it is generally better to access Hedge Funds via a FoHF’s. The FoHF managers have the necessary experience and tools to assess, invest and monitor these managers.
Hedge funds also typically have a high minimum investment level compared to traditional investment funds which precludes many investors from investing directly. Once again, the FoHF’s by virtue of pooling these investments provides access to a diversified portfolio of hedge funds, for advisors or their clients.
The benefit of hedge funds is that they can capture a large portion of the upside when markets perform but have the toolbox to avoid losing as much in the bad times. Thus there are an important addition to any investors overall investment strategy. The issue is that they are more complex and not as easy to access as traditional investments. As a result, FoHF’s are they ideal way for investors or advisors to allocate money to hedge funds and gain the benefits they have to offer.
FUND OF HEDGE FUNDS 101
INVESTSA16
Hedge Funds – not so scary aFter allJean Pierre Verster CFA, CA(SA), CAIA | Analyst, 36ONE Asset Management
16
ALternAtive inveStMentS
While no central database of hedge fund industry
statistics exists, the South African industry is
estimated to be approximately R30 billion in size,
according to the latest Novare Investments Hedge
Fund survey. This is dwarfed by the traditional
savings and investment industry: data from the Association for
Savings and Investment South Africa (ASISA) puts the size of the long-
term insurance industry at R1.45 trillion and the unit trust industry at
R1 trillion, which is an indication of the enormous potential for the
hedge fund industry to expand.
The term ‘hedge fund’ encompasses a very broad spectrum of
investment strategies. According to the FSB’s definition, it is
described as a portfolio which uses any strategy or takes any
position which could result in the portfolio incurring losses greater
than its aggregate market value at any point in time, and which
strategies or positions include, but are not limited to, leverage or
net short positions. That might sound scary, but investors who do
their homework, ask the right questions and invest with a credible
hedge fund manager may benefit from superior risk-adjusted returns
when compared to traditional long-only investments. Important
considerations include:
- PHILOSOPHY, PROCESS AND PEOPLE
These three principles are applicable when any investment is made,
whether traditional or alternative. The investor should be comfortable
with the philosophy of the manager, i.e. what is the broad approach
towards identifying profitable investment opportunities? Be wary
of very complicated strategies and flawed philosophies. Ask the
manager to explain the investment process to you. Is the process
clear and based on comprehensive research? Are all the checks &
balances in place? You should invest money only with people whom
you trust. Check whether a reputable administrator, prime broker,
auditor and compliance officer has been appointed.
- ONLY INVEST VIA LIMITED LIABILITY STRUCTURES
Notwithstanding the expectation that hedge fund managers will manage
the inherent risk of leverage and short-selling prudently, it is advisable for
investors to invest via a structure that limits the risk to the amount invested.
- TRACK RECORDS MATTER
The seeding of emerging hedge fund managers and backing of new
entrants with little experience is best left to a fund incubator – stick to
those hedge fund managers, with a track record of at least three years,
who exhibit above-average investment skill.
- ENSURE THAT THE INCENTIVES OF THE MANAGERAND THE INVESTOR ARE ALIGNED
Most hedge funds charge a substantial performance fee, which aligns
the interest of the investor with that of the manager. It is best practice
for the high-watermark principle to be applied, meaning that the
recoupment of previous negative returns do not attract a performance
fee. Also enquire whether the manager has invested a significant portion
of their wealth into the fund as well, and insist disclosure if this situation
changes in the future.
Most hedge funds in South Africa employ the equity long/short strategy,
which is not overly complex. It is an extension of the strong stock-picking
tradition of our asset management industry, where hedge fund managers
combine a portfolio of stocks that are expected to perform well with a
portfolio of stocks that are shorted due to the expectation that they will
perform poorly. Nothing scary about that.
The alternative investment industry is poised to grow strongly in the next few years, on the back
of regulatory changes, increased awareness of the industry, nervous equity markets, as well as an
increasing number of investors searching for real returns in an environment of low interest rates.
17INVESTSA
Life industry revealed to be in robust shape
The South African life insurance industry held record assets of R1.45 trillion at the end of 2011, an increase of 13 per cent from the R1.28 trillion held at the end of 2010.
Releasing the 2011 sales statistics for the South African long-term insurance industry, Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA), said long-term insurance industry assets continued to exceed liabilities by more than triple the legal reserve buffer required in 2011, despite the impact of the global financial crisis, extreme market volatility and the economic hardships felt by South African consumers.
Dempsey said that the 2011 long-term insurance industry statistics are the most representative ever, with the majority of non-traditional life licence holders (life companies that do not provide risk benefits) having submitted their figures for inclusion. Until 2010, sales statistics for the long-term insurance industry were based only on data received from life companies that were previously members of the Life Offices’ Association (LOA).
Life insurers also experienced a surge in demand for life insurance products in 2011. Dempsey reported that the industry attracted R82 billion in new individual premiums last year, compared to R66 billion in 2010. In addition to taking out new policies, policyholders maintained and increased recurring premiums for individual in-force policies. Recurring premium retirement annuities (RA) proved most popular last year. According to Dempsey, consumers committed new monthly premiums worth R1.5 billion to RAs, compared to R1.1 billion in 2010 – a 31 per cent increase.
He added that surprisingly, new lump sum investments into RAs dropped sharply by 33 per cent from R7.5 billion in 2010 down to R5 billion in 2011. “It would appear that consumer confidence in RAs requiring monthly premiums has returned since the industry implemented a number of significant reforms aimed at providing RA fund members with greater value. In 2011, we noticed a strong shift away from single premium RA fund policies towards recurring premium RAs.”
gavin came | Chairman of the Financial Planning Committee at the Financial Intermediaries Association of Southern Africa
peter Dempsey | Deputy CEO of the Association for Savings and Investment South Africa
inDUStrY ASSociAtionS
Be aware of bogus investment opportunities
With tough economic times facing most South Africans, many are trying to find an affordable investment product that will guarantee them a high return; but if they haven’t done their homework, they could be heading for financial ruin by falling prey to a bogus investment opportunity.
According to Gavin Came, chairman of the Financial Planning Committee at the Financial Intermediaries Association of Southern Africa (FIA), there are so many bogus investment schemes being advertised that new cases emerge each week. “It’s vital to conduct thorough background checks before considering investing any amount of money. Remember too that institutional risk (the risk that the business you are investing in will fail) is somewhat limited if you stick to businesses that are authorised by the Financial Services Board (FSB) or the Reserve Bank. Some investors have fallen victim to investment scams advertised in newspapers thinking the opportunity must be real since it has appeared in a respectable newspaper.”
He says there are a number of ways to spot a bogus investment opportunity. “Usually any product offering an out of the ordinary return should be looked at carefully. For example, any product offering a guaranteed return, especially if it is above about six per cent, should trigger an alarm bell as a yield higher than this normally requires some risk or some form of lock in of your funds.
“A good way to find out more information about an investment product is to research the company and product on the Internet, such as: the ownership structure; whether it is listed on the JSE; the length of time in business; track history and size of portfolio(s); people in management, etc. Next, look for valid contact details and see if you can set up a meeting to discuss the product and company history,” said Came.
“It’s vital to conduct thorough background checks before considering investing any amount of money.
INVESTSA18
1. Are alternative investments more
appropriate for institutional rather than
retail investors?
Certainly not. Alternatives, if implemented
correctly, provide a diversifying element to
any portfolio. Thus they are a useful addition
to the overall investment strategy. Throughout
the years alternatives have attracted money
from individual investors, endowments and
pension funds. Investors will remain interested
and keen on strategies that offer alpha-
generation on a consistent basis.
2. How should investors incorporate
these product sets into their portfolios?
The main benefit of alternatives is portfolio
diversification The key to incorporating
alternative investments is with due
consideration to the other assets and their
weights in the overall investment portfolio.
Depending on the existing asset mix,
different alternative strategies may have a
risk-reducing or risk-enhancing effect. The
key is to be able to model the addition of the
alternative portion to the portfolio and assess
its benefits to the client’s overall investment
strategy and objectives.
3. Have you seen an increase in appetite
for alternative investments with the
promulgation of regulation 28?
There has certainly been an increase in
the number of pension funds allocating to
alternatives and an even greater increase in
the number of pension funds wanting to
allocate to alternatives. That said, the South
African market was skewed in that, until
recently only a few large pension funds had
allocated to alternatives. They were generally
fully allocated or overweight and have had
to right-size their investments. The net result
of large funds adjusting allocations and
smaller funds allocating new monies has
been neutral to the industry as a whole.
4. Do you think current limits set by
regulation 28 are sufficient, or should
these be higher?
It is certainly a move in the right direction.
The broader question is really around
pension fund regulation in general. Should
you regulate specific levels of investment in
any asset a la the Prudent Man Rule;
or should you move towards the Prudent
Investor Rule where the focus is on the
portfolio level outcome and not the specifics
of any one asset or investment. Among the
principles highlighted in Regulation 28 is
that a pension fund and its board have a
fiduciary duty to act in the best interest of its
members, including adopting a responsible
investment approach that will lead to
adequate risk-adjusted returns to meet the
fund’s specific needs.
That said, in the environment post-
2008, where the global tendency has
been towards over regulation, this is a
good compromise.
5. What role do you think an adviser
should play in recommending these
investments?
The role of any intermediary or consultant
is important. They are the gatekeepers to
the client’s portfolio. They must, with the
help of the right tools, assess the most
appropriate alternative strategies to add to
the portfolio and, almost more importantly,
in what proportion to add them.
6. What role do alternative investments
such as private equity or hedge funds
play in the wider financial markets?
There have been many academic papers
written on this subject. There are also
many myths that abound as to the role
and impact of alternatives on financial
markets. The general consensus is that
they add liquidity and price discovery to
the markets in which they operate and
thus assist with the efficient functioning of
markets as a whole. As for the perception
that alternative managers are predatory,
all investment managers seek maximum
profit for their clients. Furthermore,
markets cannot be forced to go where the
underlying fundamentals were not taking
them already. The provision of liquidity can
only speed up what was inevitable. More
often than not, alternative funds, by virtue
of short positions, are providers of liquidity,
i.e. buyers at times of financial stress, not
contributors to the problem. They are,
however, easy scapegoats.
HeAD to HeAD | BLUe ink
Chief Investment Officer, Blue Ink
S T J O H N B U n g e Y
BLUE INK
19INVESTSA
HeAD to HeAD | SYgniA ASSet MAnAgeMent
1. Are alternative investments more
appropriate for institutional rather than
retail investors?
Alternative investments, by their nature,
tend to be more complex than conventional
investment portfolios. Hedge fund managers
have broader mandates than managers of
conventional portfolios. These mandates
allow them to use instruments that might
not be familiar to many retail investors,
and which allow them to use leverage in
their portfolios and to take short positions
in stocks. The wider mandates adopted
by hedge funds allow good hedge fund
managers to deliver very attractive returns to
their investors and at the same time manage
the risk of losing investors’ capital, but they
could also result in much higher risk if not
employed prudently.
Given the complexity of many hedge funds,
and bearing in mind the potential for
higher risk, if you follow the sage advice
of not investing in anything that you do not
understand, few retail investors are likely to
have the investment knowledge to be able to
select suitable hedge funds with any degree
of confidence. At the same time, many IFAs
will not have the skills and experience to
assist them.
Institutional investors tend to have the
advantage of having access to highly
qualified advisers who take them through
a process of developing well-diversified
investment strategies where the role of
alternative investments can be properly
understood and suitable funds can be
selected. Ironically, the global hedge fund
industry grew because high net worth
individuals were attracted to the return
profiles that many hedge funds were able
to deliver.
2. How should investors incorporate
these product sets into their portfolios?
Investors need to determine what proportion
of their portfolio they want to allocate to
alternative investments and how they want
to access them. The proportion allocated
to alternatives will be a function of the
risk and return objectives of the portfolio,
their liquidity requirements, the investors’
familiarity with hedge funds or private equity
funds, their access to suitable advice and the
regulatory constraints that they must operate
within. Access can be direct or through
a fund of funds vehicle such as a fund of
hedge funds, where access is provided to a
well-diversified portfolio of hedge funds that
are chosen and blended together by hedge
fund specialists.
3. Have you seen an increase in appetite
for alternative investments with the
promulgation of regulation 28?
To be honest, not really. There are a lot
of changes that have come with the new
regulation and most funds appear to be
dealing with the process changes first before
revisiting their investment strategies.
4. Do you think current limits set by
regulation 28 are sufficient, or should
these be higher?
As a proponent of the benefits that hedge
funds can bring to retirement funds’
investment strategies, I would naturally have
liked to have seen slightly higher limits,
say 15 or 20 per cent. However, when you
consider that this is the first time that the
regulators have included a specific allocation
to alternative investments, I think the industry
and investors can be pleased with the 10 per
cent maximum allocation to hedge funds. In
time this may be revised upwards.
5. What role do you think an adviser
should play in recommending these
investments?
The adviser is key to the process. The adviser
should have a good understanding of the
benefits that alternative investments can
add to investment portfolios, as well as the
potential pitfalls. They can then advise on
suitable allocations and the most appropriate
way to access alternative investments, where
these are appropriate for the investor.
6. What role do alternative investments
such as private equity or hedge funds
play in the wider financial markets?
Both private equity managers and hedge
fund managers tend to see markets
differently from conventional managers.
Private equity managers tend to have a long-
term view and hedge fund managers have
perhaps a short-term view and they tend
to be more active in the markets. Hedge
fund managers also take short positions in
instruments that they consider overpriced.
Hedge fund managers often manage smaller
portfolios and can benefit from analysing
instruments that managers of larger
portfolios have little to gain from spending
time looking at. Having market participants
with different investment time horizons and
different perspectives adds greater depth to
investment markets and makes markets more
efficient for all investors.
Head: Investments, Sygnia Asset Management
S I M O N p e i L e
SYGNIA ASSET MANAGEMENT
INVESTSA20
SHAUn HArriSSHAUn HArriS
lots oF value in the mining seCtors
“Investors might opt for
resources unit trust funds
or exchange traded funds.
Better returns, though, will be achieved
through the careful selection of
mining shares”
BUT THE HARD PART IS MINING IT OUT
While it has technically
been in decline for the
past few years, mining
remains at the heart
of the South African
economy. The mining industry is a large
employer and, when times are good, a large
contributor to both GDP and the national
tax base. Mining and resources stocks also
dominate the JSE, making up nearly half of
the market capitalisation of the JSE All Share
Index.
Like it or not, most investors will have
exposure to mining shares. Just about every
general equity unit trust fund or tracker
fund will include the mining large cap
companies like Anglo American and BHP
Billiton. Resources should be part of a well-
constructed, long-term investment portfolio.
But the shares do carry higher risk and more
volatility than other sectors on the JSE. The
mining sector is currently offering great
value to investors. But the daunting task for
financial advisers is, first, deciding how much
exposure should be to mining, and secondly
which shares should be included in clients’
portfolios.
The choice of mining shares is large and
diverse, with mining taking up six sectors
on the JSE. These are industrial metals and
mining; coal; diamonds and gemstones;
general mining; gold mining; and platinum
and precious metals. Companies in each
sector are affected by issues specific to
the industry in which they operate. That’s
why advising clients on choosing mining
shares is a tough task for financial advisers.
Conditions in one mining industry are very
different to another. However, when investors
think mining shares, they will often think of
one sector – gold mining.
“Physical gold is, surprisingly, more risky
as an investment than shares in gold
mines,” said Takura Mahwehwe, a portfolio
construction analyst at Cannon Asset
Managers. “The volatility of the gold price
since 1971, when the gold standard was
abandoned and the gold market liberalised,
is 28.7 per cent, compared to 18.2 per
cent for global equities. Another concern
as far as risk is concerned is the shape of
BY SHAUn HArriS
21INVESTSA
returns: gradual, more consistent returns are
delivered by equities as opposed to gold.”
There’s no doubt that gold mining shares are
offering value to investors. Big companies
like Anglo American and BHP Billiton sit on
price-to-earnings ratios around eight times.
That’s cheap and may not get any cheaper.
But there’s a good reason for it. Anglo’s
share price has lost around 18 per cent in
the past year and BHP Billiton about 15 per
cent. Yet value and risk differs a lot between
the gold mining shares.
Take Anglo American as an example of
the value versus risk spectrum. Apart from
its low stock market rating, Anglo has
upcoming events that should add even
more value to the share. Its deal to buy out
the Oppenheimer’s family stake in major
diamond producer De Beers has been
cleared by the Competition Tribunal. All
that remains is to get approval for diamond
licenses and mining and prospecting rights
for De Beers in South Africa. That should be
no more than a formality.
So there’s a nice kicker for investors. But
the downside is that mining production fell
by 14.5 per cent in February compared to
the previous year. Production is what it’s all
about, and South African mining production
is at its lowest level in 51 years. In addition
Anglo, which has large mining interests
in Zimbabwe, runs the risk (along with a
number of other mining houses) of losing 51
per cent of its interests in the country under
its proposed empowerment laws.
Anglo also faces a British high court hearing
next month where former miners will claim
benefits from the company for contracting
the lung disease silicosis while working on its
mines. Anglo is defending the court action
on the basis that it did not have a majority
stake in the mines where the workers were
affected.
That’s the choice facing investors and
financial advisers. A major mining house
that is attractively priced on the JSE, Anglo
also offers investors fairly wide exposure
to different mining industries and various
countries around the world. But it comes
with declining production numbers and
the volatility of the gold price. And there
are the other risks it faces in Zimbabwe
and the British high court. Overall there is
still value in Anglo American and investors
looking for mining shares should consider
buying. It could form the core part of the
mining section of an investment portfolio, to
which the investor could add shares more
specifically focused on particular mining
industries, like gold, platinum and coal.
Much the same is true about BHP Billiton.
Steve Meintjes, head of research at Imara,
said that a view on Anglo and BHP Billiton
is really a call on commodity demand.
“Demand is closely tied to China and
whether it’s going to have a hard or soft
landing. We have a buy recommendation on
both shares.” One way of trying to determine
value amongst mining shares is to look at
expected returns. Over the long term, a
large percentage of the return will come
from dividend payments.
Looking at coal mining, there are a few
struggling operations in the sector. Only one
company, Exxaro, is on a dividend yield, a
not too bad 3.8 per cent. Meintjes points out
that Exxaro is no longer only a coal mining
company but presents itself as a diversified
miner. Other coal companies showing
promise include Coal of Africa, Forbes and
Petmin; the latter also classified as a general
mining company. “There seems to be huge,
pent-up demand for coal, in South Africa
and neighbouring states,” Meintjes said.
Demand will ultimately lift the price of coal,
which some of the companies say hardly
make coal exports worthwhile.
Other mining shares on decent dividend
yields include Kumba (8.5 per cent); contrary
to most other mining houses, it recently put
out a quarterly report showing an increase
in production. Palamin, which mainly mines
copper, is on a dividend yield of 7.4 per cent
and Metmar, which trades bulk commodities,
has a dividend yield of 4.2 per cent.
These are the shares worth watching. Some
may be struggling now but they offer value.
But which companies should investors avoid?
Impala Platinum, the second-largest
producer of platinum in the world, is
one. Without making a judgement call on
management, the way it handled the long
strike by workers at its Rustenburg operations
was appalling. The strike was also one of
the main reasons for a 14.5 per cent drop
in mining production. The share price, up
around 50 per cent over the past year, has
been one of the best performers in all the
mining sectors. But the sharp increase in
the share price also suggests the counter is
overvalued.
Another is Randgold Resources. Management
seems very good, with CEO Mark Bristow
successfully securing a new mining contract
shortly before the coup in Mali. But its
exposure to Mali highlights its weakness.
About two-thirds of Randgold’s mining
production is in Mali. Investors should keep
away because the political risk attached to
the share just looks too great.
Investors might opt for resources unit trust
funds or exchange traded funds. Better
returns, though, will be achieved through
the careful selection of mining shares. That’s
not an easy decision, but that’s what a good
financial adviser is for.
“The mining sector is
currently offering great value to investors. But the daunting
task for financial advisers is, first,
deciding how much exposure
should be to mining, and
secondly which shares should
be included in clients’
portfolios.”
INVESTSA22
Holding on to mining as an investment
Peter Major, Mining Consultant, Cadiz Corporate Solutions
Sector report
South Africa has been world famous for high quality, high return mining investments since diamonds were first discovered here back in 1870. So it's no wonder that the Mining and Resource Index (the RESI 10) of the JSE's All Share and ALSI 40 Indices is usually close to 50 per cent of total market cap. But what is surprising is that recently the RESI 10 has fallen to barely 40 per cent ($208 billion) of the ALSI 40's market cap of $506 billion. And now the Financial Industrial Index is 60 per cent of the ALSI 40's market cap.
This begs the following questions:
* Why is the RESI 10 trading 35 per cent lower than in June 2008 when its earnings are now 35 per cent higher than then?
* Why is the RESI 10's EY (12 per cent) & DY (three per cent) currently at their second highest/cheapest of the past 20 years?
* Why is the PE ratio of the RESI 10 – relative to the Fin/Ind Index – now at a +30-year low of 0.5 (average is 1.05)?
* Why is the RESI 10 Index now at a 13 year-low price relative to the Findi 30, despite current high commodity prices?
23INVESTSA
The market isn't the only one worried about this 10-year bull run in commodity prices coming to an abrupt and inglorious end soon. I am worried about it, too. But the current ratings of most mining companies, especially the large diversifieds, are just too far out of line with everything else for my reasoning. And I can't remember –when last the commodity prices outperformed the actual mining companies’ equity prices as we've seen the past few years. Whether it's gold shares vs. the gold price, or platinum shares vs. the platinum price, the dichotomy just seems too extreme to me.
Unless the world has truly changed into something that I can't understand, then I believe the RESI 10, and particularly the large diversifieds – Anglo, Billiton and even Glencore – are too valuable relative to everything else to not make up the largest chunk of a conservative portfolio, even if commodity prices drift down from now. That is relative to everything else including cash.
If we believe that with all the quantitative easing, money printing and low interest rates of the past five years, that we'll continue this way for another two; then it is probably a good idea to hold a couple of large cap platinum and gold shares, too. Harmony, Goldfields, Lonplats and Impala all look attractive to me at present. And while there are smaller listed precious metal equities in SA with even better upside potential (such as Eastplats, Aquarius and a few others), these large cap shares at their current depressed prices offer nearly as good upward gearing, but with much better liquidity, diversification and less risk.
The sole reason for the RESI's huge underperformance this year? Sentiment; not earnings. Sentiment!
The market generally looks forward between 12 – 18 months. So today the market seems to believe that the magnificent commodity run of the past 10 years has ended. Right or wrong, the market believes that most commodity prices are going to be significantly lower in 12 – 18 months' time than they are now. This could very well be true – I tend to believe this as well.
However, that was the general thought in late 2007 and again in 2009 and yet both times we were wrong (on the commodity price side) and the RESI gained nearly 50 per cent in each year. The market thought commodities were too high in 2005, yet commodities held up and the RESI gained 70 per cent. And who can forget the RESI's 140 per cent gain in 1999 when most metal and coal prices hardly moved? And ditto the RESI's 100 per cent gain in 2001 with almost no increase in commodity prices.
Now almost no-one I know is probably more wary of current commodity prices than I am, especially the precious metal and oil prices. Gold's average real price of the past 50 years is $640 an ounce. And here it is trading at $1 650. Silver prices are currently two-and-a-half times their long term Real average. Even platinum’s40-year average real price of $910 an ounce makes the recent $1 540 an ounce look scary. Oil at $125 bbl looks too high compared to its 40-year real average of $46 bbl. As do diamonds, copper and iron ore – all trading at nearly double their long-term real average prices.
“Gold's average real price of the past 50 years is $640 an ounce. And here it is trading at $1 650.”
INVESTSA24
Mining & reSoUrceS Sector: top coMpAnieS
company information
Share price: R89.00 | Market capitalisation: R11.0bn as at 26/04/12 | Share code: AFE | Financial year end: December
company business overview
AECI Limited is a listed South African company. It has a number of
business units including:
• AEL Mining Services, which develops, manufactures and markets
explosives, initiating systems and blasting services for the mining
and construction markets. The division has established offices and
other manufacturing facilities in Africa, Latin America and South
East Asia.
• The Specialty Chemicals cluster, which consists of a number of
specialty chemicals manufacturers and marketers, with business
units located throughout Southern Africa, as well as a joint
venture in Brazil. It is actively pursuing further opportunities in this
geography.
• SANS Technical Fibers, located in the USA, which is a manufacturer
of industrial nylon yarns.
• Heartland, a company that is in the process of realising (converting
into cash) surplus land and property assets of AECI. AECI continues
to investigate new business models and alternative approaches to
realising value from its property holdings.
Dividend yield 2.9%
Turnover growth 15.8% (FY11)
Profit growth 30.1% (FY11)
1 year 3 year 5 year
Share price performance 3.2% 85.4% 11.3%
Source: AECI Integrated Report 2011
company outlook
AECI’s results at the end of the financial year ended December 2011
showed an increase in revenue of 16 per cent. Overall profit from
operations was up 24 per cent to R1 315 million, driven by a weaker
Rand and a marginal improvement in manufacturing volumes, while
mining product volumes were flat. The main contributors to operating
profit were mining services and chemicals, almost two-thirds and
one-third respectively. The positive environment also allowed AECI to
improve its operating margin to 9.8 per cent.
AECI has significant property holdings but due to a broad lack of
credit availability, only six sales transactions were concluded during
the period. Outlook for its property business for the current year
remains muted with limited interest in its industrial properties. The
major activity continues to be preparing land for release when
market conditions improve. There is potentially significant value to be
unlocked from this holding, by selling the developed or undeveloped
land. The land has been held by AECI for many decades and was
originally acquired for industrial purposes.
AECI is well positioned for an increase in manufacturing and mining
volumes, with major expansion projects completed. The balance sheet
is strong with gearing reduced to 36 per cent compared to 78 per
cent three years ago. Management’s focus for this financial year is on
expansions in selected areas outside South Africa as well as on costs
and integration of recent specialty chemicals acquisitions.
25INVESTSA
AECI, the specialty chemicals and explosives leader, is seeking more growth in key emerging economies around the world, particularly South America, Africa and Asia Pacific. To implement the strategy, a new Group structure has been developed over the past two years and executive resources have been regionally focused. Together with the experience that comes from managing successful businesses in faraway places, like Brazil, Indonesia and many African countries, the Company is clearly going the distance to grow shareholder value in the future.
Our growth plan goes the distance.
www.aeci.co.za
Brazil 22º54’S 43º11’W
Indonesia6º12’S 106º48’E
China 39º54’N 116º23’E
Across Africa26º12’S 28º2’E
AECI > Advert - InvestSA 210x297.indd 1 2012/04/25 3:59 PM
INVESTSA26
In a recent article by Fortune magazine, Berkshire Hathaway’s Warren Buffett upheld his professional dislike for gold saying that it will not pay interest or dividends, and it will not respond if you try to “fondle it”.
This said, there has certainly been high demand for gold since the financial crisis of 2007. The price of gold grew at an astounding rate of 173.1 per cent in US$ terms since the end of 2006 to January this year, hitting its ceiling of $1 785 at the end of February. What has been the real reason for this growth?
Gold has traditionally been the safe haven in times of market uncertainty as a means of risk aversion. The low global interest rate environment of late, combined with the odds stacked against a rise in inflation for the next few years have made gold a very attractive asset.
Some gold-bears, however, argue that the introduction of gold exchange traded funds (ETF) in 2006 inflated the price of gold artificially by lowering the entry barriers. As the share price increases, ETFs are forced to accumulate more physical gold bullion and this, in turn, puts upward pressure on gold spot prices. Contrary to this theory, actual evidence from the World Gold Council indicates that ETFs only account for eight per cent of global gold demand, with jewellery demand in first place at 50 per cent and coin demand coming in at about 25 per cent.
So who are the real gold investors? Conventionally the demand for gold came from developed market investors or central banks. Purchasing gold is an alternative to reserves in hard currencies and to hedge against inflation. Once again data suggests that developed markets are not the largest buyers of gold. Retail purchases by consumers in developing markets such as China and India lead the buying power; as a matter of fact, their combined demand amounts to more than that of the entire developed world. This begs the question: why are the average consumers in these countries interested in gold?
Since trade liberalisation and the commodity boom have enabled emerging markets to prosper, their financial systems have not kept up
with the pace of modernisation. This, combined with their tendency to save rather than spend money, has led to a large build-up of savings. These savers could invest abroad but the strict capital controls in these countries meant that investing abroad directly was not easy. Other options such as investing in their domestic stock markets seemed unpopular since these markets often prove too volatile (especially in China) and domestic savings accounts are disliked because of negative real interest rates. They could invest in hard assets, such as property, but these prices seemed to have peaked and are getting ready for a hard landing. This leaves gold as an obvious alternative.
The combined gross savings in China and India increased from $557 billion in 2000 to $3.4 trillion in 2010. Even now while these economies have started to show signs of slower economic growth, the average investor continued to invest more in gold with their savings.
At this point in time, there is still a lot of scope for short-term volatility in the price of gold, since all of Europe’s debt problems are not solved yet. Nevertheless, since capital controls are likely to get tighter in the short term, prospects for gold are excellent.
Another well-known asset manager, George Soros, once said, “Gold is the ultimate bubble.” He also said, “Nothing is quite as profitable as investing in an early stage bubble.”
hookeD on
econoMic coMMentArY
Merina Willemse | Economist at Efficient Group Ltd
“At this point in time, there is still a lot of scope
for short-term volatility in the price of gold, since
all of Europe’s debt problems are not solved yet.
Nevertheless, since capital controls are likely to
get tighter in the short term, prospects for gold
are excellent.”
27INVESTSA
cHriS HArt
chris Hart | Chief strategist | Investment Solutions
Brazil EssEntials
Brazil has been in the spotlight as it has overtaken the UK to become the sixth-biggest economy behind the US, China, Japan, Germany and France. As
part of BRICs, Brazil has three key natural economic advantages -- size, population and natural resources.
Despite its increasing importance globally, it is not an easy country with which to do business. The World Bank Ease of Doing Business ranking places Brazil at 126, behind China at 91 and Russia at 120, but ahead of India at 132. South Africa is placed well ahead of the larger BRICs countries at 35.
There are many similarities with SA and also important differences. The education systems are similar in that government-provided primary and secondary education is quite dreadful. The consequence is Brazil also suffers from an acute skills shortage. A glaring difference is that Brazil has close to full employment, while SA has a high level of unemployment.
Brazil is politically complex, with a federal structure of 27 states. The regulatory structure is also complex and onerous, as is the tax burden. Regulatory complexity comes with considerable government intrusion into the economy. Labour laws are strict; but while workforces are highly unionised, the union movement is quite fragmented. The consequence is that the costs of compliance with labour laws are very high, but labour unrest is not regarded as a problem or a threat.
But regulation does not only come with a stick for business. There are incentives. The Brazilian Government engages its business sector and there is an atmosphere of co-operation. The overall regulatory structure is a mixture of carrots and sticks. The Brazilian economy was greatly damaged by hyperinflation that was tamed in only 1994 and much of the past decade’s growth has been the re-establishment of the middle class. The corporate sector has also been recovering from the loss of value and balance sheet damage. Infrastructure constraints are its biggest challenge. These include road, rail, air and telecommunications.
In many ways, the SA economy is far more competitive than Brazil’s because it is much more open. There are similar challenges such as a low skills level, but the regulatory burden is not as Byzantine and SA’s infrastructure is in far better shape and less congested. The key difference is that Brazil has a strong job-creating mechanism in a vibrant small business sector, which is not the case in SA. A far higher level of employment can be achieved in the face of infrastructure constraints, skills shortages and harsh labour laws but there
has to be support for small business and entrepreneurship.
A common feature of the BRICs is that, other than SA, they are difficult places in which to do business. They have numerous competitive disadvantages, but size, population and availability of resources appear sufficient to allow inward investment to generate growth that can overcome these obstacles. They also have governments that collaborate with their business communities, which is a key deficiency in SA, where there is a lack of consultation and the relationship is quite adversarial.
The Brazilian economy has beaten its unemployment challenge through entrepreneurship and small business. The income gap, skills shortages, lack of competitiveness, low savings rates, infrastructure constraints and costs are all issues that face SA, but in many instances it is in a better or stronger position. The relationship between government and business needs to change and the environment for small business improved so that job creation can become more robust. A few tweaks and the potential of SA can be unlocked.
“The Brazilian economy was greatly damaged by hyperinflation that was tamed in only 1994 and much of the past decade’s growth has been the re-establishment of the middle class.”
There are similar challenges such as a low skills level, but the regulatory burden is not as Byzantine and SA’s infrastructure is in far better shape and less congested.
INVESTSA28
29INVESTSA
INVESTSA30
Singapore is a special place for me. This small city with few natural resources has managed to overcome obstacles to achieve a high degree of economic success. This year is special
as it marks the 20th anniversary since we opened Franklin Templeton’s Singapore office. To celebrate this milestone, we chose Singapore to host this year’s first semi-annual EM Analyst conference.
To share the Singapore perspective, I asked Dennis Lim, Co-CEO of Templeton Asset Management Ltd and one of the pioneers who started the Singapore office with me 20 years ago, to be my guest blogger to share his insights and analysis on the changes and challenges in Singapore and across Southeast Asia.
Dennis LimOur analyst conferences are high-energy events and this one was no exception. We had more than 50 analysts from our offices around the globe gathered in a single meeting room, sharing opinions on companies and discussing global events. Watching them debate investment ideas and discuss trends from the different markets and sectors made me realise just how large our EM team has grown from the days when Mark started the group. Analyst meetings used to be very regular affairs. The original
team of Mark, Tom Wu, Allan Lam and I used to travel together quite frequently so we were talking on a daily basis.
It’s been two decades since we opened the Singapore office. I have seen the city survive many setbacks; growing, maturing and reinventing itself and developing into the economic hub it is today. Since its early beginnings, Singapore’s history combined the rise and fall of the Malay empires, the exchange of European colonial powers and the highs and lows of nation-building.
The city sits at the southern tip of the Malay Peninsula, and acts as a gateway into Southeast Asia. The city hasn’t forgotten its early roots as an entrepôt, where international traders buy, sell and barter goods and services. It has developed into a centre for construction and financial services as well as for trading manufactured goods. Today, government and business leaders aspire to further develop the city into a global seat for gold and carbon trading as well.
Singapore also has one of the more well-established capital markets in the Asia-Pacific. The Singapore Exchange is the preferred listing location for close to 800 global companies1
and, since some frontier market companies are listed there, it is a conduit through which we can access companies in those markets. Adding
to this, some Singapore-listed companies offer opportunities for us to access budding new markets like Vietnam and Cambodia.
Investing in Singapore, though, comes with its own set of challenges. Its domestic market is small and the economy is a very open one as it doesn’t restrict trade, development and capital flows with other countries. This means that Singapore is more closely linked to the movements of the global markets and affected by global market volatility like the global financial crisis and the challenges from the Eurozone.
Looking beyond Singapore, the Southeast Asian nation of Indonesia is one of the countries forced to endure past challenges such as the Asian financial crisis, SARS outbreak and ripple effects of the 2011 tsunami in Japan. Despite these challenges, Indonesia rebounded each time. I do think that more needs to be done in this country where street protests are rampant, but the progress the country has made in the past 20 years is nothing short of remarkable.
With access to natural resources such as timber and coal, Indonesia has the potential to benefit from increasing global demand for commodities, mainly due to rising infrastructure development in many emerging markets which see a continued demand for hard commodities.
gateway to soutHeast asia
singapore
frAnkLin teMpLeton inveStMentS
BY MArk MoBiUS
31INVESTSA
Mark Mobius, PhD.
Executive Chairman
Templeton Emerging Markets Group
Mark Mobius, PhD., executive chairman of Templeton Emerging Marketing Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 17 global emerging markets offices and manages emerging markets portfolios.
After more than 30 years in global emerging markets, Dr Mobius has received numerous industry awards, including Emerging Markets Equity Manager of the Year 2001 by International Money Marketing, Ten Top Money Managers of the 20th Century in a 1999 Carson Group survey. In 2006, Asiamoney magazine listed Mobius as one of the Top 100 Most Powerful and Influential People. The World Bank and Organisation for Economic Co-operation and Development appointed Dr Mobius joint chairman of the Global Corporate Governance Forum Investor Responsibility Taskforce.
Dr Mobius earned bachelors and masters degrees from Boston University, and a PhD. in economics and political science from the Massachusetts Institute of Technology.
1 Monetary Authority of Singapore, February 22, 2011.2 World Economic Outlook Update, January 24, 2012.3 World Bank, “Global Economic Prospects: Uncertainties and Vulnerabilities” January 2012.
To see this article and to keep up-to-date with future blogs from Mark Mobius, please visit ttp://mobius.blog.franklintempleton.com/
1 Performance data may represent blended share class performance, e.g. hybrid created from an A(dis) share class which was converted to A(acc). Performance figures above are for A(dis) shares, except
where only A(acc) shares are available, then A(acc) performance is shown.
When the 1997–1998 Asian financial crisis struck, the Indonesian Government responded by taking control of a portion of private sector assets through the acquisition of non-performing loans, and executed a debt restructuring process. The results are a more transparent and open economy, and improved corporate governance in Indonesia.
Like Indonesia, Thailand has faced its share of economic challenges and political instability. Thailand was dealt an additional blow last year in the form of the worst flooding in decades. Despite these, we consider Thailand’s long-term fundamentals to be positive and the economic recovery to be sound. Drivers for Thailand’s economic growth include the country’s agricultural resources – including offshore gas reserves – and a successful tourism industry. For value investors like us, current valuations in Thailand generally remain attractive, though the potential growth obstacles do bear ongoing scrutiny.
We also see potential opportunities for growth in the frontier markets in Southeast Asia.
Myanmar, for example, is rich in oil, gas and all sorts of minerals. Such resources are positive, of course, but the country is not without its areas of concern. Weaknesses we’re especially mindful of in Myanmar are lack of a proper legal structure, the lack of a well-developed banking system, and the lack of solid foreign exchange operations.
Cambodia, being ideally located to take advantage of cross-trade opportunities with Thailand, Vietnam and Laos, presents other interesting Southeast Asian frontier market investment possibilities. And, of course Cambodia’s tourism industry has been strong in recent years. It isn’t all positive, though, and in Cambodia I would caution potential investors to monitor corporate governance standards to ensure investors are treated fairly.
Bottom line: the numbers for Southeast Asia are hard to argue with. The latest estimates from the International Monetary Fund project developed economies as a whole to achieve GDP growth of only 1.2 per cent in 2012 and 1.9 per cent in 2013.2 In contrast, Southeast Asia as a whole
is expected to post an estimated GDP growth of 5.8 per cent this year and 7.1 per cent in 2013.3 Of course, we don’t pick individual companies based on large-scale trends; a key component of our investment approach has always been to pick investments based on their individual merits, and to seek undervalued companies we believe to be well-capitalised with a unique and competitive product range. We consider companies that are paying solid and sustainable dividends to be especially attractive.
Viewing the region from the now 20-year-old seat of our Singapore office, what we see in Southeast Asia is a generally favourable combination of rising per-capita incomes and a relatively young population, a recipe with the potential to fuel the appetite for a wide variety of consumer goods. The challenges Southeast Asian markets face must not be easily dismissed, but overall I am optimistic about the region’s long-term growth potential.
Here’s to the next 20 years.
singapore
ABoUt MArk MoBiUS
cUMULAtive AnD AnnUALiSeD (*) perforMAnce % (DiviDenDS re-inveSteD)1
YTD One year Three year
*Three year
Five year *Five year
Templeton Asian Growth A(acc) USD 15.59 3.3 179 40.77 69.92 11.18
MSCI All Country Asia ex Japan Index 17.45 2.28 127.86 31.58 37 6.5
Templeton Latin America A(acc) USD 17.08 -4.17 129.7 31.93 50.56 8.53
MSCI EM Latin America Index 18.44 -1.72 137.59 33.43 66.58 10.74
JSE/ACT ALL SHARES SI 40 Index Performance (USD) 9.62 -10.05 98.38 25.65 13.88 2.63
INVESTSA32
ASSet MAnAgeMent
gloBal equities in turmoil? wHat tHe Headlines don’t tell youReading through business newspapers is
not for the faint hearted. On any given day, one is likely to find disturbingly
pessimistic headlines warning investors of major impending losses and predicting
even more gloom to come. However, asset managers, while wary of the current
volatile environment seem to have a much rosier outlook.
In a recent article penned by Matthew de Wet, head of investments at Nedgroup Investments, he refers to a headline he spotted in the daily newspaper: Global equities sink as uncertainty in Italy inflames fears – a dramatic enough headline to worry even the most infallible investor.
De Wet then explains that the content of the article describes how “the Dow Jones Industrial average dipped by 0.27% in mid-morning trading” and that the “Top 40 Index finished 2.19% higher”. Hardly newsworthy and hardly negative, but only careful reading exposes this.
“There are many reasons to be negative about the state of the global economy, so it’s no wonder at the amount of negative headlines. Investors from the developed markets, particularly Europe where the news is the worst, have all but abandoned equities in favour of perceived lower risk asset classes such as cash and government bonds,” added De Wet.
* Calculations made using returns of 11.5% per annum | Foord Unit Trusts Limited is an authorised Financial Services Provider
021 531 5085 | [email protected] | www.foord.co.za
Save a � xed monthly amount for 10 years then allow the capital to compound for a further 30 years. The strategy produces twice the accumulated savings compared to saving monthly for 30 years*. Ten years appears to do the work of 30. But it is the 10 years’ saving compounded for 30 years that creates the result.
GIVE YOUR INVESTMENTS TIME. BE PATIENT WITH THEM.
TIME IS ONE OF THE MOST IMPORTANT ELEMENTS IN THE COMPOUNDING FORMULA
At Foord Asset Management we believe in investing for the long term. Our track record over 30 years is proof that managing investment risk and compounding superior returns are key to the creation of exceptional wealth.
A Bloomberg report after the Easter long weekend revealed just this investor mentality. The report showed that European investors had reacted to the downtime with a clear directive to sell all risky assets, setting the stage for further declines in the US stock market and keeping the momentum in favour of a continued flight to safe-havens.
Meanwhile, Max King, strategist in Investec Asset Management’s Global Multi-Asset team believes that the conservative positioning of investors could be an indication that things are about to change. US mutual funds saw seven consecutive months of equity out-flows in late 2011, equaling the 2008 record. This signals a contrarian buying signal for equities as markets are likely to change direction when the selling pressure abates or reverses,” he said.
Tony Gibson, senior portfolio manager at Coronation Fund Managers, observes that in spite of asset managers’ views on equities, investors are still shying away from them. “Despite the numerous arguments in favour of equities, investors are still running scared. In fact, given the many risks of inflation, low interest rates and lower returns, investors should be looking at a higher equity rating in their portfolios.”
According to Gibson, “There is little question that the US is recovering and I
think it will surprise on the upside.” De Wet is more cautiously optimistic. “The reality is that although global growth may be slower, corporate profitability and equity returns may not necessarily be lower over a reasonable investment horizon of five to seven years,” he said.
King takes this view a step further – almost encouraging investors to take on some more risk despite all the negativity in the news. “Looking ahead, we would expect to see risk assets continue their strong start to the year, leaving most investors on the sidelines. Our view is for investment returns to be significantly higher in 2012 than in 2011, despite a difficult time for government bonds. A broadening equity market is likely to favour emerging markets, non-US developed markets, smaller companies and cyclical sectors while attractive value in corporate credit, high yield, emerging market debt and Asian government bonds should allow positive returns from bonds also,” King said.
Considering the views of South African asset managers and investment analysts, it seems the daily headlines need to be taken with a pinch of salt. It’s a fact that headlines sell papers. Therefore, investors are best advised to to rely on proven research and not the daily news headline for investment advice.
ASSet MAnAgeMent
“Despite the numerous arguments in favour of equities, investors are still running scared. In fact, given the many risks of inflation, low interest rates and lower returns, investors should be looking at a higher equity rating in their portfolios.”
INVESTSA34
MAYA fiSHer-frencH
wHat is best advice?A sense of disquiet has been growing among independent financial advisers around the pricing of certain investment products sold by tied agents. When a product’s cost structure makes it virtually impossible to beat a cash rate or when other equally good solutions exist at a lower cost, is it best advice to put a client into that product?
One of our large financial institutions is offering an education plan starting at R150 per month. The fees on the plan are so significant that it results in a reduction in yield of 5.9 per cent. That essentially means that the underlying investment would have to perform at around 11 per cent just to match a cash return after costs.
Considering the product is aimed at the mass market, there is no tax benefit on the endowment structure, nor is the estate planning aspect of any benefit. In fact there is absolutely no product benefit in an endowment structure for a lower income earner other than the fact that it creates a forced savings plan. How then can an adviser knowingly sell the product and meet the best advice criteria?
The counter argument is that there are no other investment products that allow for such low monthly investments and the fixed costs of offering the solution are very high.
This is a spurious argument. Firstly the client would be better off simply by putting their money with Capitec where they would receive six per cent per annum. In fact, they could opt for a 24-month fixed deposit allowing for monthly contributions which would pay them 6.25 per cent. Secondly there are several unit trusts that offer minimum contributions from
R100 per month which would give them the benefit of growth from the equity markets at a lower cost.
“The client would be better off simply by putting their money with Capitec where they would receive six per cent per annum.”
The problem really is that no adviser is going to sell those unit trusts. The requirements under FAIS do not make it financially viable for an adviser to build a business on the R4.50 per month they would receive from a selling a unit trust for R150 per month. Endowment policies allow the adviser to receive a significant portion of the commission upfront which pays for the time spent with the client. This is the real reason endowments are still sold to the mass market, not because it is a good product.
Some would argue, and possibly correctly, that the individual may not be saving at all if
it was not for the financial adviser, therefore the value of the advice is incalculable. Finding ways for mass market clients to pay for highly regulated advice remains a challenge for the industry, but investment products that are virtually guaranteed to underperform cash are not the answer and the industry is going to have to start thinking out of the box on how to deliver products at prices affordable to the client, not only to the provider.
There are now calls for the Financial Services Board to start looking at the costs associated with investment products. Finance Minister Pravin Gordhan raised the issue in his 2012 Budget address when he stated, “Fees for many products in the financial sector remain too high. High costs in savings products undermine the national objective of getting our people to save more. The financial industry must take more urgent steps to reduce costs and introduce more appropriate and transparent savings and investment products, including annuities.”
What really is needed now is a complete rethink around how financial advice is offered, who pays for it and ultimately what really constitutes the best financial advice. What we do know is that product structures based on remuneration of the distribution force rather than client needs is not a solution.
35INVESTSA
Fred van der Vyver | Head of Guaranteed Investment Portfolios at Old Mutual Corporate
As such, members are urged to carefully consider the investment options available to them to ensure they have the appropriate strategy to achieve their retirement goals.
Fred van der Vyver, Head of Guaranteed Investment Portfolios at Old Mutual Corporate says due to the current economic challenges and the high cost of living, the stakes are so much higher for individuals.
“Many South Africans simply cannot afford to save any more money. This means they also cannot afford to lose any value in their savings and often, this can result in them being more comfortable investing in very conservative portfolios,” he says.
Van der Vyver warns that conservative asset classes such as bonds and cash may not provide sufficient real returns over the long term. “In order for investors to achieve their retirement goals, the investment strategy needs to include sufficient investment in growth asset classes such as local and international equities, property and alternative growth asset classes such as private equity,” he says.
According to Van der Vyver, aggressive balanced funds aim to achieve this objective by investing large proportions of the fund in these growth asset classes. However, since the move from defined benefit to defined contribution funds, the investment risk has been transferred to members, who therefore tend to opt for a more conservative balanced fund strategy instead.
“While a conservative balanced fund will ensure that members’ savings do not fluctuate as much in value, they are also unlikely to produce the required returns over the long-run to ensure the member can retire comfortably” he says.
Van der Vyver explains that the significant reduction in volatility in the conservative balanced fund is coupled with a similarly significant reduction in returns over the long term. “Although this strategy may reduce the volatility and market risk that the investor faces, it introduces a different kind of risk. Many members may not be fully aware of this,” he warns.
According to Van der Vyver, one option that can assist investors in achieving real returns over the long term, but without the volatility of returns over the short term is the use of smoothed-bonus funds. “Smoothed bonus funds essentially allow members the option to transfer some of the investment risk that comes with a defined contribution arrangement to an insurance company,” he says.
According to Van der Vyver, they have three distinct components: an underlying balanced fund that generates real returns; a smoothing capability that reduces the volatility of the underlying returns; and various levels of guarantees that can be added,” he says.
Van der Vyver explains that the underlying balanced fund is the driver of the smoothed bonus fund‘s returns over the long term. “This means that the long-term expected return for
smoothed bonus funds will be similar to a similarly managed market-linked balanced fund, before any guarantee charges. The second component, which is the smoothing of returns, reduces the volatility of the underlying returns significantly.”
Furthermore, he says given that a bonus smoothing reserve (BSR) can be used to absorb the short-term volatility, it is possible to further increase exposure to growth asset classes to 80%, and still achieve volatility below that of conservative balanced funds.
Van der Vyver adds that the third component of smoothed bonus funds, namely guarantees, offers an additional layer of protection to members that is not possible with a balanced fund. “These guarantees ensure that members can have absolute certainty about their minimum retirement benefits irrespective of what happens in investment markets – which is obviously a very beneficial aspect of the fund for members that are nearing retirement,” he says.
retirement fund memberS urged to conSider more aggreSSive inveStment optionS available
retireMent inveSting
Current volatile market conditions mean that members of retirement funds may tend to invest in more conservative asset classes. While this strategy may protect their portfolios from some short-term volatility, it is unlikely to help them achieve their long-term investment goals.
“Although this strategy may reduce the volatility and market risk that the investor faces, it introduces a different kind of risk. Many members may not be fully aware of this.”
INVESTSA36
Satisfying a key investment principle of asset
diversification, the differentiation between the
two asset classes now permits a retirement fund
to invest up to 15 per cent of its assets into
participation mortgage bonds and an additional
15 per cent under immovable property.
This change has opened up immovable property as
an asset class to retirement fund trustees looking to
satisfy a well-balanced retirement investment strategy.
WHY PROPERTY?
Property is considered one of the largest and
most widely held asset classes. Satisfying the
moderate risk appetite, it presents itself as a
typical middle-of-the-road investment option.
Considered as a key component of a retirement fund
investment, property is a solid performing, long-term
investment. Moreover, as a tangible investment, it
satisfies the retirement fund investment objectives
of capital preservation and a return that is in line or
above inflation with the least associated risk.
For those who do not have the level of capital
required for direct property ownership, a
property portfolio is a mechanism through
which investing in the direct property market is
made possible. Without directly having to own
or manage property, a retirement fund can
invest in immovable property as an asset class.
DIRECT PROPERTY OFFERS SIGNIFICANT RETURN
Unlike listed property that is vulnerable to
market sentiment and thus downturn, unlisted
or direct property offers significant returns
based on the property fundamentals of rental
income and capital appreciation.
Direct property offers diversification from
the market, as its performance is not linked
to market sentiment. Reflecting the property
cycle, the valuing of direct property is
conducted annually as opposed to daily
pricing of shares that affect listed
property investment.
WHAT IS THE RETURN?
Investment in a property portfolio is classified
as a moderate risk, promising a consistent
and stable investment return. The investment
return comprises both an income stream
from rentals and capital appreciation from
the increase in the value of the properties.
The significance of the investment return
is that as inflation escalates, so does the
property rental price and the overall value of
the property. An increase in inflation means
an increase in an investor’s return.
DIVERSIFICATION REDUCES RISK
Adding to the attractive return, a diversified
property portfolio reduces the risk of
compromising capital. In accordance with
the principle of not placing all your apples
into one basket, a property portfolio is
diversified either by sector or geographical
location. This investment principle minimises
risk, as the investment is spread collectively
over various property sectors and areas.
Balanced exposure ultimately ensures the
stability of a property portfolio.
Adequately diversified portfolios include a
range of commercial, industrial and retail
properties. Serving multiple purposes, a
diverse property selection ensures an appeal
to a wide range of tenants which, in turn,
guarantees a secure and consistent rental
income. Although driven largely by economic
prosperity, geographical diversification
ensures that the risk associated with investing
in property is spread over a combination of
established and emerging areas. Thus, a
property portfolio is exposed to the returns
that characterise both established and
emerging property markets, with the stability
of the return from established markets
stabilising the volatility of the return from
emerging markets.
REGULAR INCOME STREAM; LONG-TERM CAPITAL GROWTH AND SECURITY
A property portfolio presents a retirement
fund with an investment that provides a
regular income stream from rental income,
coupled with long-term capital growth.
In addition to reaping the benefits of the
security provided by owning property,
retirement funds can invest in property as
an asset class without directly having to
own and manage properties. Its attractive
characteristics satisfy the prudential
investment guidelines of Regulation 28,
affirming its place on the retirement
investment radar.
cHanges to regulation 28 aFFirm immovable property’s place in retirement Fund investments
regULAtorY DeveLopMentS
Walter van der Merwe | CEO FedGroup Life, FedGroup Financial Services
The new Regulation 28 of the Pensions Fund Act came into effect on the 1 July 2011 as a regulatory intervention to ensure that retirement savings are invested in a prudent manner resulting in a diversified retirement fund investment. From an asset management perspective, an encouraging change is the differentiation of immovable property and participation mortgage bonds which were previously classified under the same asset class.
37INVESTSA
Listed property has consistently outperformed other asset classes over the past 10 years, during which time it caught the attention of institutional investors and players in the physical
property market. This resulted in numerous new listings during the early to mid-2000s as owners of physical property sold their assets into listed portfolios in order to reap the benefits of improved liquidity and diversification.
The listed property sector has grown from a total market cap of R13 billion in 2002 to R160 billion currently, increasing its contribution to the All Share Index from one to three per cent. Therefore on a relative basis it has tripled in size, which is significant.
In order to take a view on expected returns going forward, particularly on the back of such strong absolute and relative performance, it is important to understand what has driven performance historically. In essence, listed property is an equity/bond hybrid. It has bond characteristics because listed property stocks do not retain earnings, but pay out all net income in the form of an income distribution. It is therefore attractive from an income perspective and is an alternative to bonds and cash. However, income is not fixed, but fluctuates depending on the underlying net rental growth from the properties which the stock owns. This gives it equity characteristics. There are two major cycles that drive listed property performance – long bond yields and GDP growth.
During the early part of the 2000’s listed property bull market, prices rallied on the back of falling inflation which drove bond yields, and hence listed property yields, down. When yields fall, capital values rise and vice versa.
This price rally then continued because of high real growth in income distributions as rentals in the physical property market were driven higher by the strong economy. Where are we now? Long bond yields are low and the economy is sluggish. We have already seen how the latter has reduced the growth rate of income distributions paid out by listed property stocks, with some even reporting negative growth rates. For investors looking for a strong run in prices, this looks like a disappointing space to be in and it is. As paradoxical as it may sound, this is one of the attractions of listed property. This is when the income component comes in to play.
The income expected to be paid out by listed property stocks is, on average, between seven and eight per cent on current prices. This is very similar to long bond yields and better than cash. For a basket of carefully selected listed property stocks, the growth in income distributions over the next 12 months is expected to be between five and six per cent. This income growth element makes listed property more attractive than bonds because the initial yields are similar. So, listed property does have a place in a
balanced portfolio. For income dependent investors, a yield that is higher than cash and which grows over time is appealing. A very important point is that listed property does have capital volatility, so income-dependent investors need to have the nerves for fluctuations in capital values. At some point bond yields will go up, which is negative for listed property prices. An entry point now needs a long investment horizon.
In order to access this market, it is best to seek the advice of a financial adviser to select an investment product that is professionally managed by an asset management company with both property and fixed income expertise. The various listed property stocks have varying degrees (and types) of risk, so astute stock selection is crucial.
overvieW of tHe LiSteD propertY MArketMariette Warner | Listed Property Fund Manager, Absa Asset Management
“The listed property sector has
grown from a total market cap
of R13 billion in 2002 to R160
billion currently, increasing its
contribution to the All Share
Index from one to three per
cent. Therefore on a relative
basis it has tripled in size, which
is significant.”
propertY focUS
INVESTSA38
please outline your investment strategy and philosophy for the fund.
As a long-short equity hedge fund focusing on the South African equity market, we apply fundamental analysis to assist us with bottom-up stock picking to select the shares we wish to purchase. In the same process, we identify the shares that we like the least – these shares form the core of our shorts. The hedge fund structure provides us with tools to further reduce portfolio risk. Our philosophy is to buy shares that are priced incorrectly relative to our expectations (i.e. reasonably priced companies that are expected to continue operating successfully), and to short shares of companies that are facing problems which are not expected to be resolved in the short to medium term.
What are your top five holdings at present?
Naspers, MTN, Cashbuild, Life Healthcare and British American Tobacco.
Who is the fund appropriate for?
We believe that this fund is appropriate for sophisticated investors looking for exceptional risk-adjusted returns in a fund that captures significant market upside while still protecting against market downturns.
Have you made any major portfolio changes recently?
No.
How have you positioned the fund for 2012?
Hedge funds allow significant flexibility and adaptability in terms of the way in which the fund is positioned. The structure allows us to easily shift our position, but we do not position the fund with a view on how markets might perform over the short term, our strategy is long term in nature.
please provide some information around the team responsible for managing the fund.
The fund is managed by a team. The original team has worked together for more than 15 years, initially at HSBC and then at Investec. 36ONE Asset Management was established in late 2004. Carefully selected team members have been incrementally added over time. The focused team is highly skilled, experienced, dedicated and passionate.
please provide performance of the fund over one, three and five years (please include benchmark).
The fund returned 24.5 per cent over one year to 31 March 2012 (benchmark: five per cent); 25.3 per cent p.a. over three years (benchmark: 5.9 per cent p.a.) and 16.4 per cent p.a. over the last five years to 31 March 2012 (benchmark: 7.8 per cent p.a.).
please outline fee structure of the fund.
Management fee: 1 per cent p.a.Performance fee: 20 per cent of gains using the high watermark principle.
Why would investors choose this fund above others?
This fund has an exceptional performance track record over an extended period of time. It is one of South Africa’s largest hedge funds. Investors would choose this fund due to its ability to consistently deliver excellent performance
Steven Liptz | Co-founder
“We believe that this fund is appropriate for sophisticated investors looking for exceptional risk-adjusted returns in a fund that captures significant market upside while still protecting against market downturns.”
fUnD profiLe - 36one
profile
39INVESTSA
fUnD profiLe
MorningStAr tAkeS Stock
MTN Group (JSE: MTN) made headlines in April
on allegations that it has engaged in all sorts of
underhandedness. The accusations claim that MTN
engaged in deliberate bribery and manipulation
in order to supplant Turkcell as the provider of
private cell phone service in Iran. More recently
the Democratic Alliance (DA) has requested that
the South African Rights Commission investigate
MTN for violation of human rights in Iran by
allowing the Iranian government the ability to
eavesdrop on MTN-Irancell (which MTN Group
owns 49% of)customers.
Correspondingly MTN’s stock price fell 8.5% on
the news to close trading on April 4 at R127,55.
Given MTN’s relative weight within the South
African stock market it is a core holding in many
South African equity funds. The following funds
in our database had the largest exposure to
MTN Group:
It is worth noting that it is possible these funds have added to or reduced their exposures to MTN since their last reported holdings. But with the data we do have none of these funds has an exposure to the stock that couldn’t be liquidated very quickly should the fund manager deem it desirable to do so.
FUND
Momentum Industrial
Satrix Indi
Coronation Industrial
SYmmETRY Satellite Eq No.4
STANLIB SWIX 40 ETF
Momentum Structured Equity
Old Mutual Top Companies
BoE Core Equity
SYmmETRY Satellite Eq No.3
Nedgroup Inv Rainmaker
27Four Active Equity
Dibanisa Absolute Return
Portfolio Date
2011/12/31
2012/04/04
2011/09/30
2011/12/31
2011/12/31
2011/12/31
2011/12/31
2011/12/31
2011/12/31
2011/12/31
2011/12/31
2011/12/31
% of Portfolio
16.3
13.1
12.0
11.9
11.3
11.3
11.3
10.7
10.5
10.5
10.5
10.2
Position Market Value
R 16 985 436
R 91 314 421
R 24 684 750
R 14 756 040
R 248 420 515
R 16 317 954
R 187 640 090
R 80 632 530
R 327 704 400
R 1 445 923 800
R 2 777 584
R 5 749 200
# of day to liquidate
0.0
0.0
0.0
0.0
0.2
0.0
0.1
0.1
0.3
1.1
0.0
0.0
of Mtn exposure
“tHe democratic alliance (da) Has requested tHat tHe soutH aFrican rigHts commission investigate mtn For violation oF Human rigHts in iran.”
INVESTSA40
SUneL veLDtMAn
You will never have enough… So don’t even bother
Week after week these
headlines appear in the
press. We read reports
of dishonest advisers,
regulatory changes,
high fees on retirement products and the
unaffordability of retirement. While I do
not doubt the validity of these reports, they
tend to focus on the negative aspects of
retirement savings.
Negative news and sensation sells
newspapers. The awards for the best
financial journalists often go to the ones
who have dug up the biggest scandals.
Educational articles are often boring and
repetitive. Just think about it. Have you
ever read a headline entitled: “Steady
saving helps couple to retire.” What’s
more, financial news channels have turned
financial data into entertainment. Around
the clock, financial news stations create the
impression that ordinary people need to be
in touch with their money. Every day, endless
streams of experts appear on TV and radio,
informing ordinary people what they should
do with their money, often with conflicting
advice from minute to minute.
I have also seen ‘experts’ advise ordinary
people to take extraordinary risks with their
retirement savings. For example, a while
ago an article suggested that investing in
agricultural derivatives might be a good
solution to retirement savings. Another
one suggested five stocks as enough
diversification for a retirement portfolio. I
have seen advice that suggests buying your
own business or buy-to-let properties are the
only options to save enough for retirement.
I suspect that for many the notion of
retirement savings is fraught with danger. I
suspect that many ordinary people think that
they simply do not have what it takes to save
for retirement. I suspect that many do not
even bother. If I put myself in their shoes, I
might have given up too.
Don’t get me wrong. The financial industry is
guilty of many practices that have wounded
people’s ability to retire comfortably. Industry
change was necessary and is still necessary.
That said, the whole industry is not entirely
rotten. For every one financial adviser who
is guilty of transgression, there are hundreds
who are honest and who have helped people
to successfully retire.
Fortunately, all is not lost. I recently met with
three couples who used ordinary retirement
vehicles and old-fashioned unit trusts to
save enough money for very comfortable
retirements. Once again it reminded me that
saving for retirement is not rocket science. It
also reminded me that there are a few basic
(but boring) principles for retiring well. I think
it might a good reminder to us all, advisers
and clients alike.
Mr and Mrs Entrepreneur started their
own business 20 years ago. When Mr
Entrepreneur resigned from his job, he
preserved his accumulated pension in a
preservation fund. When his business started
to earn enough money to pay him a salary,
he contacted a financial adviser who sold
him a retirement annuity. Soon after, his
wife joined him in the business. She also
preserved her pension and started saving in
a retirement annuity.
Sunél Veldtman, CFP CFA is the author of Manage Your Money, Live Your Dream, a guide to financial wellbeing for women. She is also a presenter and facilitator. She has more than 20 years of experience in financial services, most of which as a private client adviser.
“For every one financial adviser who is guilty of transgression, there are hundreds who are honest and who have helped people to successfully retire.”
41INVESTSA
As they earned more, they increased their
retirement annuity contributions. In their fifties
they also contributed regularly to unit trusts,
always maintaining a balanced exposure
to different asset classes in their overall
portfolio.
When I met with Mr and Mrs Entrepreneur,
they had accumulated enough money to
retire comfortably and travel extensively after
their retirement. I was interested to see that
although there were a few advisers involved
over the years, all of them had recommended
well-diversified investment portfolios, which
stood the couple in good stead.
Mrs Steady has worked for the same large
company for the past 20 years. She is now
approaching retirement. She diligently
contributed to her pension fund for all those
years. In addition, she also contributed to
retirement annuities to ensure that she utilised
the maximum tax benefit every year. Over the
years, Mrs Steady was also advised to invest
in endowments and unit trusts. Although
she was fortunate enough to inherit some
money from her mum, she would have been
able to retire comfortably even without this
inheritance. Once again, I was impressed
by the balanced nature of her investment
portfolio. She will now not only be able to
retire at 60, but will also fulfill her dream of
travelling extensively during retirement.
Mr and Mrs Independent took a slightly
different route, but with equally impressive
results. Ten years ago, Mr Independent
realised that he was paying high fees on
particularly opaque savings products. He
made a decision to cash in these products
and to rather invest in a more transparent
and independent way. Although Mr
Independent retained his preservation funds,
from his previous employment, he contacted
a stockbroker and started a share portfolio.
Even though he allowed the portfolio
manager at the broking firm to manage the
portfolio, he kept in close contact, ensuring
that he fully understood the rationale for the
transactions and often initiated changes in
the portfolio. Over the years, they built up a
large portfolio of quality shares. The couple
is now ready to retire. They will benefit from
the portfolio’s dividend income, as well as
the income from their retirement savings.
They will be able to help their grown-up kids
further their education, put down deposits
on their first properties and pay for future
wedding expenses. They will also be able to
afford a comfortable retirement.
All of these people managed to educate
their children. They did not indulge them with
expensive lifestyles, although they are now in
the position to help them financially.
These three stories illustrate that ordinary
working people can save for retirement.
There are seven keys hidden in these stories:
1. Saving is a discipline, fashioned over
a long period of time. Put the power of
compounding on your side.
2. All of these clients had modest lifestyles,
which enabled them to save.
3. Saving in expensive vehicles is better
than not saving at all. Although cheaper
retirement options are available now, this
was not always the case. These days it is
possible to closely monitor the costs of
retirement vehicles and everyone should.
4. Preserving pension fund benefits
contributes significantly to a successful
retirement. It not only preserves tax
benefits in your savings, but also
allows the capital to benefit from
years of compounding. I fully support
the government’s initiatives to make
preservation compulsory.
5. A diversified portfolio improves the
investor’s experience over the years
and helps them to stick with the initial
plan. I have seen single sector funds in
retirement vehicles destroy the faith of the
investor, in the retirement vehicle itself. I
believe that forcing investors to stick with
Regulation 28, in retirement vehicles, will
only increase the likelihood that more
people will retire comfortably.
6. Utilising the tax advantages of retirement
vehicles also puts the power of
compounding on your side and helps you
to save more over time.
7. Having both discretionary and retirement
savings provides investors with flexibility – it
provides the best of both worlds. It also sets
up retirees with more than one income stream
and protects against regulatory changes.
Contrary to the picture painted out there, it is
possible to retire successfully.
“I was impressed by the balanced nature of her investment portfolio. She will now not only be able to retire at 60, but will also fulfill her dream of travelling extensively during retirement.”
“BANK PAYS FOR ADVISER’S SCAM.”
“GOVERNMENT TO OVERHAUL PENSION INDUSTRY.”
“BE THE MINORITY THAT CAN AFFORD TO RETIRE.”
INVESTSA42
HOTAfricA to BecoMe tHe SeconD-fASteSt
groWing region According to the International Monetary Fund, over the next five
years, seven of the top 10 fastest-growing economies will be from Africa. This can be attributed to African governments making
it easier to do business in the countries and welcoming economic investments.
ceoS optiMiStic for 2012The Merchantex CEO Confidence index, which collates views
from more than a 100 CEOs of mostly listed South African companies, revealed a 20 per cent increase to 65.6 points in the first quarter of 2012. This is the highest score reported since the index’s inception in the second quarter of 2009 and highlights a renewed optimism amongst CEOs towards the overall economic
environment for 2012.
groWtH in eMerging MArketSAccording to the HSBC’s emerging markets index (EMI), emerging markets recorded the fastest economic growth in three quarters in
the first quarter of 2012 due to manufacturing rebounding and the services sector accelerating. The index is based on 21 service
and manufacturing sector purchasing managers’ surveys in 16 emerging economies.
SHoprite’S r8 BiLLion AfricAn expAnSion SeeS SHAreS Drop BY 7.7 per centShoprite saw share prices fall by 7.7 per cent as they announced they were seeking R8 billion from the market. The share and bond offering is aimed at expanding operations in South Africa and Africa. Analysts believe it is a strategic move aimed at directly taking on Walmart in Africa as they look to pursue the huge opportunities that exist on the continent.
sideways
NOT
BAroMeter
DiSneY Set to report An operAting LoSS of over $80 MiLLion DUe to JoHn cArter fLopWalt Disney has reported that the movie John Carter will post a loss of approximately $200 million after it cost $250 million to produce. This may result in it being the worst performing movie of all time. Disney could report an operating loss of approximately $80 million to $120 million at the end of the second quarter of this year.
tHe WorLD BAnk DecreASeS cHinA econoMic groWtH forecAStThe World Bank has decreased its forecast of China’s economic growth to 8.2 per cent. The forecast will result in the lowest growth rate in 13 years. China has lowered its growth target to 7.5 per cent.
S&p DoWngrADeS SoUtH AfricA’S econoMic oUtLookS&P has downgraded South Africa’s economic outlook from stable to negative, due to reported structural economic and social problems. This follows an earlier move by Moody’s and Fitch to downgrade the country’s outlook.
The Total return performance data for the period ended 30 March 2012, indicates that a number of divergent ETF/ETN products were able to better the 5,74% total return provided by the JSE All Share Index over the first 3 months of this year.
Market Beating performance18 of the ETFs/ETNs that have been in issue for more than one year (or 60% of all passive ETFs/ETNs over the past year), were able to provide a total return performance in excess of the All Share Index. This tends to refute the view that only active fund managers can outperform the general market benchmark. The wide variety of index classes and assets tracked now provides the investor with a strong choice of market listed portfolios to meet most investment objectives.
Alternatively, using such Exchange Traded Products as the building blocks in portfolio construction, taking advantage of their low costs and instant liquidity, enables the fund manager to provide alpha (market-beating performance), utilising passive funds as the portfolio components.
etfSA.co.za
Mike Brown | Managing Director | etfSA.co.za
Now, for the first time ever, all South Africa’s ETFs & ETNs on a SINGLE WEBSITE.
Visit the website: www.etfsa.co.za or call 0861 383 721 (0861 ETFSA1)
• Everything you need to know about each ETF/ETN• Absa (NewFunds), BIPS (RMB), DBX Trackers, Investec, Nedbank, Proptrax, Satrix,
Standard Commodity Linkers • Transact online all ETFs/ETNs • Low costs • Easy access & switching• From R300 per month• From R1000 for lump sums
quarterly etF/etn perFormanCe survey For First quarter 2012
Year to date (past three months)Fund Total return* (%)Satrix FINI 15 13.36DBX Africa 12.72NewFunds eRAFI FINI 15 12.57Satrix DIVI Plus 12.43Standard Bank Platinum-Linker 11.32Standard Bank Silver-Linker 10.52Satrix INDI 25 10.25Standard Bank Africa Equity 9.27NewFunds INDI 25 9.36Nedbank BettaBeta Top 40 7.55RemarksAfrica funds have been the short-term top performers. On
the domestic front, financial and industrial indices have
come to the fore. Silver and platinum funds have shown
recovery. * Measures capital plus dividend reinvested on a NAV to NAV
basis.
Data provided by etfSA.co.za and Profile Media Funds Data (for
period ended 30/03/2012).
PASSIVE INVESTMENT ETF/ETN FUNDS THAT BEAT THE ALL SHARE INDEX OVER THE PAST
YEAR
FundTotal return
performance (%)Index/asset tracked
NewGold ETF 31.01 Spot gold bullion price
Standard Bank Gold-Linker ETN 30.61 Futures gold bullion price
Satrix DIVI Plus ETF 23.13 FTSE/JSE Dividend Plus
DBX Tracker MSCI USA ETF 20.43 MSCI USA
Satrix INDI 25 ETF 19.26 FTSE/JSE INDI 25
Satrix FINI 15 ETF 19.14 FTSE/JSE FINI 15
NewFunds eRAFI FINI 15 ETF 17.05 Enhanced RAFI Financial 15
Proptrax SAPY ETF 16.09 FTSE/JSE SAPY Property
NewFunds eRAFI INDI 25 ETF 15.95 Enhanced RAFI Industrial 25
RMB Inflation-X ETF 14.15 ILBI Index
zShares GOVI ETF 12.98 GOVI Bonds
DBX World ETF 12.27 MSCI World
DBX Japan ETF 12.19 MSCI Japan
DBX FTSE 100 ETF 11.68 FTSE 100
BettaBeta Top 40 ETF 9.36 FTSE/JSE EWT 40
Satrix RAFI 40 ETF 8.94 FTSE/JSE RAFI Total Return
Stanlib SWIX Top 40 ETF 8.78 FTSE/JSE SWIX Top 40
Satrix SWIX Top 40 ETF 7.92 FTSE/JSE SWIX Top 40
JSE All Share Index 7.29 FTSE/JSE ALSI Total Return
Source: etfSA.co.za / Profile Media / JSE (for period ended 30/03/2012).
INVESTSA44 INVESTSA44
inDUStrY neWS
Appointments
MitonOptimal, the specialist global multi asset management company, has appointed Andy Pfaff to lead the development of a domestic commodity fund management business in Cape Town. Pfaff has many years’ experience on investment bank proprietary trading desks, including Investec and Rand Merchant Bank, and was a founder of Trendline hedge fund management.
Gordon Webb has been appointed by Investment Solutions to serve as a client servicing account manager to various blue-chip companies, and will be responsible for building and maintaining relationships with institutional clients on retirement and investment opportunities. With this addition, the institutional business team is well positioned to provide service to over 1 900 retirement funds.
Statucor has appointed Alun Rich as a director in the Cape Town office. Rich was founder member of Wilson Rich and Associates, the largest independent company secretarial practice in Cape Town. He brings extensive company secretarial experience to the Cape business community.
Grindrod Asset Management and Plexus Group have announced plans of an agreement to merge the respective asset management businesses, including Plexus Global Asset Management domiciled in Hong Kong.
The merger is subject to signing of agreements and obtaining regulatory approval, and will see each business bringing in excess of R4 billion of assets under management or advice to the consolidated investment management business. The new entity will operate under the Grindrod Asset Management brand.
Dr Prieur du Plessis, chairman of the Plexus Group, said that the merging of these two boutique entities will create a strong player in the asset management industry. “We have identified many synergies over the past few years and it became clear that a formal merger of the complementary Plexus and Grindrod Asset Management investment teams and
supporting services would be beneficial to both shareholders and clients alike.”
Senior executives from both Grindrod Asset Management and Plexus will fill the leadership positions in the new entity. Dr Du Plessis will be the non-executive chairman, with Mark Logan of Grindrod Asset Management and Paul Stewart of Plexus Asset Management as executive directors. Grindrod Asset Management’s Ian Anderson will take the role of chief investment officer, while Ian Pallot of Plexus will head up finance and operations.
“The merger will give the Plexus team access to the additional proprietary research of the experienced Grindrod Asset Management investment team and wide coverage of broader aspects of the investment markets, which we believe will lead to excellent investment outcomes over time,” said Paul Stewart, executive director.
merger of grindrod aSSet management and plexuS group on the cardS
Following strong financial results for the period ending February 2012, PSG Group, the Stellenbosch-based diversified investment group, has announced a plan for bigger acquisitions.
Piet Mouton, CEO of PSG, said PSG is looking for bigger investments in order to have a bigger influence. “We look at two to three investments a week. But a lot of them don’t fit what we want to do. So we are going to be quite selective about acquisitions.” PSG has just over R400 million in cash to spend after committing over R200 million to its subsidiary Curro by following a rights issue earlier in the year.
According to Mouton, education is one area in which the group had appetite for investment and acquisition with PSG already owning 63 per cent of Curro Holdings, which acquires, develops and manages private schools.
Andy pfaff gordon Webb Alun rich
pSg on acquiSition path
45INVESTSA 45INVESTSA 45
hermanS & roman announce planS to liSt on JSeHermans & Roman Properties has announced plans to list on the JSE in the
second quarter of 2012, bringing R3.6 billion worth of assets onto the market
and presenting new opportunities to investors.
According to the company, over the past 10 years it developed into a substantial
property management business and has managed real estate portfolios that the
directors estimate to be worth in excess of R20 billion in aggregate.
Leslie Hermans, CEO of Hermans & Roberts, said it has been quite a journey
for the company which has assembled a portfolio of high-quality, regionally
prominent and scarce prime properties offering stable, defensive cash flows
and value-creation potential. “Our focus post-listing will be to grow the
portfolio and deliver superior shareholder returns."
He said that although the company had a number of potential acquisitions in
the pipeline, the focus was on acquiring fewer but larger assets rather than a
lot of smaller assets.
Hermans & Roman’s portfolio comprises three retail properties and two office
properties and would be managed internally by the company’s team of real
estate professionals.
S&p 500 outperformed bY JSeIf converted to US Dollars and indexed to 2000, the JSE
all-share index outperformed the US S&P 500.
This is according to Chris Gilmour of Absa Investments,
who said that the S&P 500 has failed to get above its
2000 level in real terms, while the JSE has outperformed
both the S&P 500 in Dollar terms as well as SA inflation
over this period.
Without Apple’s income, earnings for the rest of the S&P
500 companies would have been flat, said Gilmour.
Furthermore, the S&P 500 companies derived around
40 per cent of their earnings outside the US, so they
were more as a result of play on global growth rather
than US growth on its own. That is why the continued
festering of the European sovereign debt situation was a
global problem.
Gilmour added that SA retail sales appear to be running
out of steam so certain retailers look expensive and the
retail index has outperformed the all share index since
2007. “Resource stocks are now at very attractive levels.
We prefer to have an exposure to gold via exchange
traded funds rather than gold mining shares. Sasol
appears to be very good value, but construction shares
are expected to remain in the doldrums for the next two
years,” he concluded.
reSearch revealS phaSing in outperformS a lump Sum
Recent research conducted on lump
sum investing by acsis Research
and Investment Management (RIM),
reveals that phasing in outperforms
a lump sum only approximately 40
per cent of the time. This is based
on comparing the returns of each
approach after 12 months.
Johnathan Brummer of acsis said
that phasing in an investment
reduces the downside risk of
investing. For example, phasing in
over nine months reveals that the
worst 12-month return was -30 per
cent compared to -48 per cent for
a lump sum. “The risk reduction
does, however, come at a cost. The
research revealed that the maximum
12-month return is reduced from
125 per cent for a lump sum to 88
per cent when phasing in over 12
months, and the average return
decreases from 16.91 per cent for
a lump sum to 13.01 per cent when
phasing in over nine months.”
He said that the acsis research also
sheds light on the most favourable
phasing in period. “It shows that
there is very little difference in return
when phasing in over three months
versus investing a lump sum. If
phasing in, a period of between
six and 12 months should be used.
As with any risk mitigation strategy,
both risk and return will be reduced
and a decision will need to be made
as to whether the cost is worth it.
The larger the size of the lump sum
in relation to the total portfolio,
the more important risk reduction
becomes and the more sense it
would make to phase in.”
Brummer also explained that
because markets trend upwards,
on average, phasing in will mean
a lower return than a lump sum
investment, as the investor is out of
the market for a longer period.
“Resource stocks are now at very attractive levels. We prefer to have an exposure to gold via exchange traded funds rather than gold mining shares. Sasol appears to be very good value, but construction shares are expected to remain in the doldrums for the next two years.”
INVESTSA46
Glacier by Sanlam launches Glacier P2 Strategies
Glacier by Sanlam has launched Glacier P2 Strategies, an investment option overlaid on funds that balance growth with safety, following the successful launch by Glacier International, in 2010, of the P2 Strategies on its international platform.
The strategies are now available to investors on the local platform and allow investors to invest more money in growth assets such as equities, while helping to reduce the risk of sudden and large losses in their portfolio due to market downturns.
This is achieved through dynamic rebalancing of the client’s portfolio between growth assets and money market instruments according to how the markets are performing. So when equity markets are declining, for example, a greater proportion of the client’s portfolio will be allocated to money market instruments; but as equity markets rise, so the allocation to growth assets will increase. Clients can also personalise their investment according to their own risk profile by selecting the level of preservation they require.Glacier P2 Strategies therefore gives clients more control over their investments and retirement planning.
Verusha Ramlakhan, product manager at Glacier by Sanlam, said that in the 21st century people not only live
longer, but also retire earlier, so preserving and growing capital is more important than ever, and this means having a certain portion of investment in growth assets.
Typically clients want the same income when they retire as they had before retirement. “However, looking at the retirement annuity (RA) and investment-linked living annuity (ILLA) investments on our platform, we can see that clients are cautious when it comes to investing in growth assets,” she said.
“Forty-five per cent of RA investors in the 35 – 45 age group have less than 50 per cent in growth assets. When looking at investors in the investment-linked living annuity (a post-retirement product), the percentage allocated to growth assets is lower still.”
“Glacier P2 Strategies provides clients with the peace of mind to stay invested in the markets despite the volatility, as the strategies aim to limit large drops in the value of the portfolio. It also assists in smoothing the path between pre- and post-retirement saving by providing comfort over the level of return on the investment.”
The investment is managed on a daily basis by Glacier under advice from experts at Milliman, one of the world’s largest risk management firms, and with marketing and systems support from Bermuda-based P2 International Ltd.
INVESTSA46
pRoDUCtsproDUctS
46
“glacier p2 strategies provides clients witH tHe peace oF mind to stay invested in tHe markets despite tHe volatility, as tHe strategies aim to limit large drops in tHe value oF tHe portFolio.”
FedGroup’s annual launch reveals refined product offering
FedGroup Financial Services embarked on a
nationwide road show last month, revealing a
refreshed product offering to the industry. In addition
to introducing the FedGroup Property Portfolio for
institutional investors and reintroducing FedGroup’s
Property Services, the group also launched tailored
individual investment options for its Participation
Bond product.
With more than 21 years’ experience and 6 000
investors, FedGroup has refined its Participation Bond
product options to offer more flexibility to investors.
“FedGroup’s products and services are designed to
remove the complexity typically associated with products
within the financial services industry. In a continued bid
to ensure innovation and simplicity, we refreshed our
Participation Bond product options,” said FedGroup
executive, Scott Field. FedGroup’s Participation Bond
product now includes a fixed option, which offers a
certainty of return, regardless of fluctuating market
conditions; and an investment option, which offers a
stable return and the flexibility of withdrawal. While the
fixed option is an investment fixed for five years at a fixed
rate, the investment option has a fluctuating market-
related rate that allows for withdrawals as desired. Both
product options allow for the monthly interest earned to
be paid out or reinvested.
“A Participation Bond quite simply presents an investor
with the certainty of capital preservation, coupled
with the consistency of interest. Our refreshed product
options were designed to allow investors to take
advantage of a secure investment in our Participation
Bond product based on their needs,” concluded Field.
47INVESTSA
Uk’s first double dip recession in 37 yearsBritain has entered into the first double-dip recession since 1975, after two quarters of negative growth. Economists had expected official data to show the economy grew by 0.1 per cent between January and March; however, the results showed a surprising 0.2 per cent fall followed by a 0.3 per cent reduction in GDP in the last three months of 2011. Prime Minister David Cameron claimed it would be “absolute folly” to borrow more money to try to get out of a debt crisis.
the time is now for SA to invest in Zimbabwe The South African Ambassador to Zimbabwe, Vusi Mavimbela, has urged South Africans to invest in Zimbabwe saying it is a “sleeping giant that is in the process of waking up”. According to Mavimbela, the Zimbabwean economy is growing at an average of nine per cent which is unheard of in many parts of the world.
Libya hopes for $1 trillion in foreign direct investmentLibya is expecting a cash injection of $1 trillion in foreign direct investment to rebuild its economy after the civil war. Ahmad Salem Al Koshly, Libya’s Minister of Economy, said that while Libya is currently faced with many challenges, foreign companies have already moved back to the country to resume outstanding projects.
china, Japan and South korea take action to safeguard financial marketsChina, Japan and South Korea have agreed to boost cross-investment in government bond markets, worth $15 trillion at the 12th Trilateral Finance Ministers’ and Central Bank Governors’ Meeting of China, Japan
and South Korea, recently held in Manila. The three powers agreed to promote trilateral currency swap arrangements in order to stabilise and safeguard their regional financial markets against the Eurozone crisis.
Spain is in recession Spain has hit a second recession in three years. The economy declined by 0.4 per cent in the first quarter of the year, this follows the 0.3 per cent decline of the last quarter of last year. Spain currently has a 24.4 per cent unemployment rate which came after the collapse of the lending property sector in 2008. The Spanish Government is considering helping banks, by allowing them to place bad debt into a government organised fund.
italy delays its plans to balance budget by 2013Italy will delay its plan to balance the budget in 2013 by twelve months, as a result of missing its budget deficit targets for 2012 and 2013. This is according to the draft economic and financial document (DEF) that showed that the economy is due to decline by 0.5 per cent in 2013 and 0.1 per cent GDP in 2014. DEF also revealed that public debts will reach a high of 120.3 per cent in 2012 before decreasing to 117.9 per cent in 2013.
cuba’s allies threaten to boycott future oAS summitsCuba’s Latin American and Caribbean allies have threatened to boycott Organisation of American States (OAS) summits should America and Canada continue to exclude them from future events. The United States and Canada have not invited Cuba to OAS summits since 1959 following Fidel
Castro’s revolution as they do not consider the Caribbean country to be a democracy. The Latin American and Caribbean nations condemned the “unjustified and unsustainable exclusion of Cuba” in a statement issued in Cartagena.
turkey gears up for influx of SyriansPrime Minister Recep Tayyip Erdogan, said that Turkey is considering options including a buffer zone as it prepares for an influx of Syrian refugees which would cost the country $150 million. To date, 25 000 Syrians have sought safety in the neighbouring country of Turkey as their infamous Syrian President Bashar al-Assad’s regime cracks down on protesters and armed rebels.
carlos Slim Helu the world’s richest man according to forbes magazine Carlos Slim has been announced as the world’s richest man by Forbes magazine. Though his fortune is down $5 billion compared to the previous year, he is still on top of the chart with a net worth of $69 billion. Bill Gates follows in second position with $61 billion and Warren Buffett in third position with net worth amounting to $44 billion.
olympics give Britain economy a boost Economists predict that the London Olympics will give Britain’s weak economy a short-term boost. However, it will fail to prevent a sharp slowdown and economic recovery this year. According to Samuel Tombs, an analyst at Capital Economics research group, most of the effect has already been experienced through increase in investments over the past five years. The British Government has also invested R116 billion (11.2 billion Euros) to stage the games since London was announced as the host city in 2005.
UK, SA, ZIMBABWE, LIBYA,CHINA, JAPAN, SOUTH KOREA, SPAIN, ITALY, CUBA, TURKEY
tHe WorLD
INVESTSA
The 100th anniversary of the Titanic’s sinking took place recently on 15 April. The historical tragedy, in which 1 522 people perished, has remained a powerful
part of our cultural history through films, books and television shows ever since its occurrence.
The demand to own a tangible piece of history has spurred on the growth in the Titanic memorabilia market. Simple items salvaged from the wreck have been auctioned over the years for large sums of money. “The market has grown from strength to strength and, in 2012 alone, numerous relics and artefacts were sold on auction,” said Paul Fraser of Paul Fraser Collectables.Here is a list of the five most expensive Titanic memorabilia items ever auctioned.
Master key for cabins e1–e42 – £84 000
First class steward of the Titanic, Edward Stone was responsible for cabins E1–E42. Sadly, he lost his life in the tragedy, but his memory lived on through artefacts recovered from his body and sent to his widow in Southampton, England. Amongst Stone’s collection of personal items, the master key for cabins E1–E42 was sold by auction house, Henry Aldridge and Son in October 2008 to US collector for a price of £84 000.
Last titanic lunch menu – £76 000
In April 2012, Henry Aldridge and Son sold the menu from the last lunch served on the Titanic. The menu illustrates the luxury of the cruise liner offering 40 different options for the sitting. The menu survived in the handbag of Ruth Dodge, a first class passenger and wife of prominent San Francisco banker, Dr Washington Dodge, who survived the tragedy with her son.Menus have proven to be highly popular among collectors, but what made this menu special was the fateful date, 14 April 1912, printed on it.
crow’s nest keys – £90 000
Henry Aldridge and Son sold a set of keys, which could have changed the course of history, on auction in 2007. These keys unlocked the crow’s nest locker, which contained a set of binoculars, but never made it onto the ship. Instead, it remained in the pocket of Second Officer David Blair who was excluded from the voyage at the last minute and had forgotten to hand it to his replacement. The result forced lookouts to scan for danger using the naked eye.
edmund Stone’s pocket watch – £94 000
This pocket watch captured a historic moment when its hands poignantly froze at 02:16; the exact moment Stone entered the freezing waters of the Atlantic to which he later succumbed. The watch was sold in October 2008 by Aldridge and Son for a record price of £94 000.
titanic Longitudinal ship plan – £220 000
The record for the most expensive piece of Titanic memorabilia is currently held by an almost 10-metre long hand-drawn plan of the ship used during the inquiry into its sinking. The plan, which was drawn up by the Naval Architects Department of the White Star Line and was described as the “Holy Grail of Titanic memorabilia”, was sold by Henry Aldridge and Son in May 2011 for a record price of £220 000.
AND NOW FOR SOMETHING coMpLeteLY Different
TiTanicmemorabilia sets sail for record prices
“The market has grown from strength
to strength and, in 2012 alone,
numerous relics and artefacts were sold
on auction,”
48
49INVESTSA
AND NOW FOR SOMETHING coMpLeteLY Different
Delicious food, brilliant art and a variation of cultural initiatives come together within a tranquil and refreshing ambiance at the
Beautifull Life Building on Bree Street.
Eating at Beautifull Foods is more than a breakfast or lunch experience. It is a jewel for refined tastes - a one-of-a-kind arts and culture development centre that combines sumptuous healthy foods in a creative and relaxed atmosphere where some of South Africa’s talented and emerging professional artists are able to display their finest works.
The bistro falls under the umbrella of the Youngblood Africa Arts & Culture Development centre, which also has its home in the 800sqm multilevel Beautifull Life Building. The concept is unique in that it gives resident and emerging artists exposure and an opportunity to sell direct to the public. It is a space where buyers, art enthusiasts, investors and the original artists can connect, or simply relax and enjoy art and devour the delicious food on offer.
Breakfast is uncomplicated and all produce is organic and free range. Muesli with seasonal fruit salad and plain yoghurt is the healthy option but it’s the poached egg on rye, with rocket, Franschhoek salmon trout and a fresh horseradish-dill crème fraiche that is a first choice.
Lunch offers a tasty quiche and salad of the day combo - there is also the Chef’s Soup for a winter warmer – but you’ll have to enquire with your waiter on the day as only the freshest produce is used. Pasta with rocket, goat’s cheese, cherry tomatoes, basil and garlic topped with olive oil is the gap
filler, while the Sandwiches of Love on either a ciabatta or rye get the taste buds going.
The health conscious will certainly opt for one of the ‘Happy Belly Salads’, although anyone could be tempted for Clara’s shrimp salad – spicy prawns served with avo, toasted sesame seeds and coriander. All salads can be supersized serving four people. A cake selection is also available for the sweet tooth or if you’re simply coming to select a new work of art try the Delux coffee, spiced tea, or a cinnamon milo while you ponder.
Every alternate Saturday, an Art-a-Fare features a new selection of art, ranging from paintings and sculptures to photography and colourful array of blown-glass, and so the eatery is constantly metamorphosing as new creations come and go and patrons and buyers come back for a new perspective. Contemporary design classics by Danish
designer Verner Panton’s, as well as imported Italian contract furniture can also be found here.
Youngblood funds a range of social cultural initiatives and all profits generated from sales and corporate events are fed back into their projects so that local artists and talented creatives are able to continue producing their work. Other projects they have funded include the Remix Dance Company, and more recently the ‘Flower of Shembe Operette’, which premiered at the Artscape.
Interested individuals and corporates can also become members and have the benefit of being invited to all Youngblood events and receive reduced fees for music concerts, performances and functions. The Beautifull Life Building is ideal for light business lunches, corporate meetings or a brainstorming session when creative ideas are called for.
Beautifull Food
LifeStYLe
VISIT THEM OR MAKE ENqUIRES AT:
Tel: 021 424 0074Website: www.ybafricanculture.com
tHeY SAiD...
“The sluggish pace of the recovery raises
concerns that a steady trickle of restrictive trade
measures could gradually undermine the benefits
of trade openness.” World Trade Organisation
director-general pascal Lamy, saying that world
trade will slow for a second year.
“Obama’s guards expelled in Colombia over
prostitution – shame the gringos think that Latin
America is a brothel and they act like it, too.”
Venezuelan political commentator, nicmer
evans, on the fact that US security personnel
were sent home over allegations of misconduct
in a hotel. A Colombian police source said
prostitutes were taken to their hotel.
“The economy is getting stronger. The recovery
is accelerating and the last thing we can afford
to do now is to go back to the same, worn-out,
tired, uninspired, don’t-work policies that got us
into this mess.” US President Barack obama
“If they do develop the institution, the World
Bank will want to be a partner with it, just
as we are with regional development banks,
NGOs, civil society groups and national
development banks.” World Bank
president robert Zoellick on the proposed
BRICS development bank.
“It is remarkable that six of the world’s 10
fastest-growing economies were African. In
eight of the past 10 years, Africa has grown
faster than East Asia.” President Jacob Zuma
talking at the 4th International Trade and
Investment Conference at Sun City.
“Remembering that I’ll be dead soon is the
most important tool I’ve ever encountered
to help the big choices in life.” Steve Jobs,
Apple founder.
“You move from political freedom to economic
freedom. Economic freedom should be the
centre of this centenary.” ANC treasurer
Matthews phosa warning of a North African-
style Arab Spring if the government does not
tackle rising unemployment amongst the youth.
“The omelette could be unscrambled, but it
would leave the central banks of the creditor
countries with large claims against the
central banks of the debtor countries, which
would be difficult to collect.” Billionaire
investor george Soros says if financial
markets are concerned other countries will
follow Germany’s Bundesbank in ‘guarding’
against the end of the Euro.
“There is still a lot of cash on the sidelines
looking for a pullback, and I suspect some
people over the weekend said, ‘Yeah, maybe
I’ll put some money in,’ and then you get
Ben Bernanke’s comments and that stoked
the fire.” Bob Doll, BlackRock’s vice-
chairman and global chief investment officer
in New York, commenting on the S&P 500
rebounding from its worst week in 2012.
“If the economy worsens more than expected,
it will be necessary to continue increasing
and improving capital as necessary in order
to have solid entities.” Spanish central
bank governor Miguel Angel fernandez
ordonez, on further recapitalising banks.
A selection of some of the best homegrown and international quotes that we have found over the last four weeks.
50
tHeY SAiD...
“The sluggish pace of the recovery raises
concerns that a steady trickle of restrictive trade
measures could gradually undermine the benefits
of trade openness.” World Trade Organisation
director-general pascal Lamy, saying that world
trade will slow for a second year.
“Obama’s guards expelled in Colombia over
prostitution – shame the gringos think that Latin
America is a brothel and they act like it, too.”
Venezuelan political commentator, nicmer
evans, on the fact that US security personnel
were sent home over allegations of misconduct
in a hotel. A Colombian police source said
prostitutes were taken to their hotel.
“The economy is getting stronger. The recovery
is accelerating and the last thing we can afford
to do now is to go back to the same, worn-out,
tired, uninspired, don’t-work policies that got us
into this mess.” US President Barack obama
“If they do develop the institution, the World
Bank will want to be a partner with it, just
as we are with regional development banks,
NGOs, civil society groups and national
development banks.” World Bank
president robert Zoellick on the proposed
BRICS development bank.
“It is remarkable that six of the world’s 10
fastest-growing economies were African. In
eight of the past 10 years, Africa has grown
faster than East Asia.” President Jacob Zuma
talking at the 4th International Trade and
Investment Conference at Sun City.
“Remembering that I’ll be dead soon is the
most important tool I’ve ever encountered
to help the big choices in life.” Steve Jobs,
Apple founder.
“You move from political freedom to economic
freedom. Economic freedom should be the
centre of this centenary.” ANC treasurer
Matthews phosa warning of a North African-
style Arab Spring if the government does not
tackle rising unemployment amongst the youth.
“The omelette could be unscrambled, but it
would leave the central banks of the creditor
countries with large claims against the
central banks of the debtor countries, which
would be difficult to collect.” Billionaire
investor george Soros says if financial
markets are concerned other countries will
follow Germany’s Bundesbank in ‘guarding’
against the end of the Euro.
“There is still a lot of cash on the sidelines
looking for a pullback, and I suspect some
people over the weekend said, ‘Yeah, maybe
I’ll put some money in,’ and then you get
Ben Bernanke’s comments and that stoked
the fire.” Bob Doll, BlackRock’s vice-
chairman and global chief investment officer
in New York, commenting on the S&P 500
rebounding from its worst week in 2012.
“If the economy worsens more than expected,
it will be necessary to continue increasing
and improving capital as necessary in order
to have solid entities.” Spanish central
bank governor Miguel Angel fernandez
ordonez, on further recapitalising banks.
A selection of some of the best homegrown and international quotes that we have found over the last four weeks.
50
69453 Investec SA 297X210.indd 1 2012/03/16 10:27 AM