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Contents

CONTENTS

06 08 10 12

They’ve worked hard for their money So you better treat them right

14 16

PROFILE: Glenn Silverman Global Chief Investment Officer at Investment Solutions

18 20 23-27 28 38

SUBSCRIPTIONS

Fund structures for private wealth planning Wealthy families move their focus to governance and protection Developed markets submerged by emerging markets - No easy call for investors going into 2012

HEAD TO HEAD Daryll Owen - CIO for BoE Private Clients / Jonathon Stewart - CIO for Momentum Investments A ROSIER OUTLOOK FOR SOUTH AFRICAN EQUITIES? SA’S STAR MANAGERS UNVEIL THEIR PREDICTIONS FOR 2012 fund profiles

Investment clubs How to tap into group savings

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12

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3


Letter from the editor

letter from the

EDITORIAL Editor: Shaun Harris investsa@comms.co.za

editor

Features writers: Maya Fisher French Miles Donohoe Publisher - Andy Mark Managing editor - Nicky Mark Design - Gareth Grey | Dries vd Westhuizen | Robyn Schaffner Editorial head offices Ground floor | Manhattan Towers Esplanade Road Century City 7441 phone: 0861 555 267 or fax to 021 555 3569 www.comms.co.za Magazine subscriptions Bonnie den Otter | bonnie@comms.co.za Advertising & sales Matthew Macris | Matthew@comms.co.za Michael Kaufmann | michaelk@comms.co.za Editorial enquiries Miles Donohoe | miles@comms.co.za

investsa, published by COSA Media, a division of COSA Communications (Pty) Ltd.

Copyright COSA Communications Pty (Ltd) 2011, All rights reserved. Opinions expressed in this publication are those of the authors and do not

W

elcome to what promises to be a thrilling 2012. Thrilling might not be what investors are looking for; just dull and boring real returns. But there’s little doubt that there will be plenty of thrills along the way, to keep investors and their financial advisers on their toes. At the outset of this year, the large global economies are likely to keep setting the pace, as the US and a large part of Europe goes bankrupt. But things could get better. At the risk of being branded an optimist, which I confess I am, last year’s black swans could turn into white swans. Then again, the black swans could mutate into vultures to pick off what little is left of investors’ returns. Thrilling stuff, isn’t it?

necessarily reflect those of this journal, its editor or its publishers, COSA Communications Pty (Ltd). The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any

Step in the good financial adviser. Maya Fisher-French analyses what the adviser should be and says that it pays to be a ‘life coach’ to plan and run a lifestyle plan for clients in these difficult times. Maya’s second feature looks at investment clubs. The benefits seem to be many. However, if the club is using a financial adviser, she cautions that it may be complex to manage.

damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or products or the reliance of any information contained in this publication.

4

I look at high net worth investors and why private client managers love them, even when they get up their noses. Best advice is to sneeze politely. I also turn to the debate between investing in developed or emerging markets. It’s pretty open and emerging markets seem to be making a strong comeback.

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In Head to Head Daryll Owen, CIO at BoE Private Clients, shares his outlook for the year ahead with Jonathan Stewart of Momentum Asset Management. The profile is on Glen Silverman, Global CIO at Investment Solutions. The Industry Associations section looks at what the policy change on inward listings means for institutional investors, and this is explained to us by ASISA’s Leon Campher. Paul Whitburn, senior analyst at RE:CM, and Neels van Schaik, portfolio manager at PSG Asset Management, tell us a tale of two commodities – platinum and gas. There’s a whole lot more inside that I just don’t have the space to mention everything. One thing, though, in this double issue is that there is not a page where I did not learn something new. That has been rewarding, I’m a wiser person for it. Many investors and asset managers will be, too. We’ve given you the weapons to get through the year. Worst comment I’ve heard is that 2012 will be like 2011. Nothing thrilling there, I hope it’s wrong. And I won’t even contemplate it being worse than 2011. All the best investment returns in 2012.


ride the bull and tame the bear A new world of Investments Momentum Investments is a full-service investment house offering clients more choice. Exceeding R320 billion assets under management it holds some of the country’s most respected investments players – Momentum Asset Management, Momentum Alternative Investments, Momentum Manager of Managers, Momentum Collective Investments, Momentum Investment Consulting, Momentum Global Investment Management, Momentum Properties, Momentum Wealth and Momentum Wealth International. Welcome to a new world of investment choice.


SHAUN HARRIS

B

eing rich can be difficult. The money that the high net worth investor (HNWI) has accumulated to become rich has typically been over a fairly long time. These investors are therefore looking for capital stability, and primarily no loss of income. That’s the obvious choice, but HNWIs tend to have a good understanding of investments and stock markets. At times they will second guess their financial adviser on the investment calls they want to make. And often it will be the right call.

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Another problem with being rich is that everyone wants a wad of the money. From the South African Revenue Services to financial services companies and even family, the HNWI’s money needs to be protected. Financial advisers play a crucial role here. They should be looking at who is trying to get some of the money and deal with it for the client. A good adviser can assess what the client wants to invest in and offer a studious opinion on the investment. But like wealthy individual investors around the world, HNWIs in South Africa are reacting to the horror show in global markets and, by implication, on the JSE. They want their money protected but at the same time will be looking for growth investments, probably including equities. This appears to be leading to a new trend of investment decisions and asset allocation calls. “Perhaps the question should be whether investors view risk, and specifically risk taking, in the same way as they did previously, or whether a new interpretation or understanding of what risk actually means has emerged,” asked Paul Stewart, MD of Plexus Asset Management. “Behavioural finance suggests that recent negative experiences and natural loss-aversion tendencies will cause people to view the world in a pessimistic light after periods of uncertainty. I believe investors have undoubtedly lowered their tolerance for risk a notch or two. Risk is being understood less in a technical sense but with a more practical interpretation, namely the permanent loss of capital.” Risk can also have different meanings for HNWIs. It may be protecting capital but often it will be that the capital lasts until some future date. Many HNWIs are banking on the money they have now providing for something ahead, perhaps a longterm investment plan and more likely retirement. HNWIs tend to be outside company structures and the related retirement funds. The combination of lower risk tolerance and the need to protect and grow capital is leading to some new asset allocation calls. As sophisticated investors, they make their own asset allocation decisions. Once again, the adviser needs to offer a reliable opinion on the asset allocation decision. Asset allocation is the most important decision an investor will make and now is not a time to be brave, said Karl Leinberger, chief investment officer at Coronation Fund Managers. He provides a table of the investments in the main asset classes over the past 10 years and 10-year forecasts. For example, local equities have provided investors with 17.4 per cent the last 10 years. This is likely to drop to between eight to twelve per cent in the decade ahead. Local property earned investors 23.2 per cent a

year the past 10 years but this is forecast to drop to between eight to 10 per cent over the next decade. Local bonds yielded 10.2 per cent over the past 10 years, and the forecast is between eight and 10 per cent in the next decade. Global equities, however, have provided only 3.1 per cent in the last 10 years, and is forecast to increase to between 12 to 14 per cent. Not surprisingly Coronation prefers global equities to local equities. “We’ve done better offshore than locally,” Leinberger says. It shows in Coronation’s global funds that are well ahead of benchmarks. And it’s not difficult see why Leinberger prefers global equities to the JSE. Another table compares large SA companies to global peers. With only one exception, the local stocks are more highly rated than the offshore shares.

“Perhaps the question should be whether investors view risk, and specifically risk taking, in the same way as they did previously, or whether a new interpretation or understanding of what risk actually means has emerged.” Coronation identifies three opportunities for South African investors. “European bank bonds where credit risk is low, quality global blue chips on three to four per cent dividend yields, and South African rand hedge equities.” The latter includes shares like MTN, Naspers, SABMiller, Mondi, Omnia and Trencor. These shares are all in the JSE top hundred index and would be included, probably through a balanced fund, in client portfolios. But for clients who want to invest in companies directly, it’s a good guide to where the quality local shares can be found. Leinberger also has advice for financial advisers. “Back the long-term winners and don’t fidget (meaning don’t buy and sell). Split funds between three and four managers. Invest in their diversified, multi asset funds. Expend energy getting client’s draw downs to sustainable levels.” The last point is particularly important for HNWIs and their advisers. A client might have a lot of

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money but if draw downs are too high the money could run out, probably at that critical time when the client reaches retirement age. The adviser needs to formulate a financial plan with his client that preserves capital for as long as possible, though investments should still be made in growth assets. Advisers also need to ensure that their clients are long-term investors. Holding periods among individual investors has dropped remarkably, from years to months. Clients are not going to get the benefit of the investments made unless they are in for the long haul. Marriott Asset Management, which specialises in income-focused investments typically for retired clients, said that retired clients need to consider two aspects: immediate income needs and future income needs, each of which will have different influences on their portfolio decisions. “Looking at immediate requirements, an investment portfolio should provide this income without eroding capital.” “The portfolio decision regarding current income involves determining the required income level and then acquiring a blend of cash, bonds, real estate and equities which will generate the required income. Cash, bonds and real estate provide reliable high income; equities enable the income to grow.” But Marriott added that it’s crucial that the choice of equities should include only those which generate a reliable, growing income stream. It lists examples such as Pick n Pay, a supplier of essential goods that can pass inflation on to consumers, and Altech which gets reliable and growing income from contractual cellphone services. “For future income requirements, an investor’s portfolio choice is one that aims to accumulate capital and grow the capital value. This can be achieved by a combination of reinvesting income, which accumulates more capital and income growth which renders the capital more valuable.” But Marriott said that when planning for future income requirements by maximising capital accumulation and capital value growth, the blend of investments should be primarily influenced by income tax considerations as well as an investor’s risk tolerance. It’s not hard to see that this is a demanding time for financial advisers. Financial markets are in turmoil and not likely to improve soon. Coupled with the threat of rising inflation, advisers need to sit down with clients and execute a well thought through investment plan. Wealthy people, while having good financial literacy and understanding, often don’t find the time to make their own investment decisions. This is where advisers should play a vital role.

7


HIGH NET WORTH

John Langan | Partner with Maitland in London

“Assessing which structure to use can be a complex exercise, requiring the right blend of tax, regulatory and private client advisory skills.�

Fund structures for private wealth planning

T

raditionally, trusts (or, in a civil law context, foundations) have been the default option for private wealth structuring. Private fund structures, however, are becoming an increasingly common vehicle for tax and estate planning for the internationally wealthy.

The reasons for establishing a fund vehicle and the choice of structure and jurisdiction will, of course, vary with the circumstances and tax profile of any given family. Naturally, tax efficiency at the level of the fund itself and of its investors is the prime focus, but other factors (for instance, governance) are also important. Fund structures enable family assets to be managed and preserved in a common pool, while facilitating some degree of family involvement.

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which permits the establishment of unregulated

without wishing to undertake any costly, time-

private funds, for instance the British Virgin

consuming or overly burdensome process

Islands, Cayman Islands, Jersey or the Isle of

of regulatory authorisation, a British Virgin

Man, provided the relevant criteria are met.

Islands public-fund structure may be used with a Cayman Islands-based manager.

Sometimes, for tax or regulatory reasons, families may actively seek a more regulated

AIFM

or a corporate fund structure, perhaps

One factor which is beginning to impact

established in a tax-effective onshore-offshore

significantly on choice of jurisdiction, between

jurisdiction. Such structures may be either

European Union and non-EU domiciles, is the

protected-cell, with ring-fenced sub-funds,

EU’s Alternative Investment Fund Managers

or stand-alone. Normally, they will require

Directive, which is scheduled to be in force

regulated operators or managers. However,

throughout the EU by July 2013. Whether this

subject to regulatory requirements, a side-letter

becomes an issue may depend upon the size

or sub-advisory arrangement with the fund’s

of the fund, the degree of leverage and the

regulated manager may facilitate the desired

jurisdiction of residence of investing family

degree of family influence.

members. The true long-term impact of this legislation awaits the finer detail of the Level 2 regulations currently being drafted and the

Types of fund structures Limited partnerships – to take a structure very well known in a private fund context – have been used for decades as family investment vehicles in the United States and are increasingly being used elsewhere. The limited partnership is generally convenient for family wealth planning as the general partner, of which there is usually only one, has

“Sometimes, for tax or regulatory reasons, families may actively seek a more regulated or a corporate fund structure, perhaps established in a taxeffective onshoreoffshore jurisdiction.”

they are only liable to third parties to the extent of their obligations to commit capital to the partnership and have no management authority. Regulatory requirements often mean that regulated service providers need to be found for particular roles (for instance, that of the general partner), though an element of family influence at a strategic level can generally be provided for in the limited partnership documentation. Regulatory constraints can, however, sometimes be avoided by establishing the partnership in a jurisdiction

EU jurisdictions secured by non-EU offshore fund centres. Suffice to say, at this point, that credible options exist for private fund structuring both within and outside the EU. In conclusion, there is a wide variety of structures and jurisdictions which may be used, if it is felt that a fund structure is in principle right as a vehicle for holding a family’s wealth. Assessing which structure to use can be a complex exercise, requiring the right blend of tax, regulatory and private client advisory skills.

management authority and liability, while the limited partners have limited liability, meaning

extent of any reciprocity arrangements with

Examples of structures which may be used in this context include, for UK-resident families, the FSA-authorised open-ended investment company, or (if a less restrictive and less retailorientated structure is required) one of the sophisticated or professional investor structures offered by a number of jurisdictions; for instance, the Luxembourg specialised investor fund (SIF), Irish qualifying investor fund (QIF), Isle of Man specialist fund (SF) or Maltese professional investor fund (PIF). Alternatively, where a family requires a family-owned asset management vehicle,

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HIGH NET WORTH

Wealthy families

move their focus to governance and protection Johan van Wyk | COO at Stonehage Financial Services

A

focus on capital growth at the expense of overall

in the management of family assets as soon as is practically possible.

governance and protection has been exposed by the global

This will not only help with the education and mentoring of the children in

economic crisis as a significant fault in the investment

managing the family wealth, but also creates a natural family succession

strategies applied by many wealthy individuals and families.

plan.” The family council could allocate defined responsibilities to each family member, such as liasing with the appointed legal counsel or

That’s according to Johan van Wyk, COO at Stonehage Financial

independent trustees, and reporting back to the family council. A calendar

Services, a leading multi-family office advising high net worth individuals

of regular formal meetings is agreed to at which business, investment and

and international families.

lifestyle assets, as well as governance and policy issues are reviewed.

“The very difficult and complex investment environment of recent times

“The family’s assets, liabilities and cash flow projections are scrutinised

has uncovered underlying strategic faults in how individuals and families

and formal presentations of major proposals are conducted at meetings

manage their wealth. This includes an excessive focus on capital growth,

of the family council. Decisions are formally minuted and follow up

often with consequential over-reliance on leverage. The result for many

responsibilities allocated,” said Van Wyk.

individuals and families has been a lack of liquidity and a diminution in cash and income relative to other assets,” said Van Wyk. He added that

Over the past 35 years, Stonehage has been assisting individuals and

this has led to assets often being force sold at the wrong time, resulting

families with all aspects of global family office, wealth management and

in lost wealth that is seldom recovered, and that wider and deeper wealth

fiduciary services. Risk management and proper governance to protect

planning is required for high net worth individuals and families, with risk

and manage family wealth will remain a priority for many years to come.

management having regained its rightful place at the top of the agenda.

Stonehage’s core focus is to advise clients on protecting, managing and administering family wealth, inter-generationally and multi-jurisdictionally.

The greatest risks relevant to a family’s wealth have arisen from fundamental issues, like macro changes in the global economy, rather than from individual investment decisions. However, risks also tend to arise from the less obvious issues, such as inadequate succession planning, family conflict and litigation, taxation, and poor governance. Van Wyk suggested that to properly manage their risks, wealthy families should be more formally governed like businesses and embrace the seven virtues of corporate governance. These include discipline, transparency, independence, accountability, responsibility, fairness and social responsibility. Wealth protection through governance, especially for wealthy families, should, where necessary, include the formation of a family council consisting of members of the family and independent, trusted advisers. The family council’s main objective will be to formalise and document a global long-term strategy that incorporates risk tolerance and governance procedures specifically relevant to the family and its wealth. He added that it is important that all members of the family are involved when setting up the family council, especially the inclusion of the next generation. “It is a good idea to involve younger members of the family

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Jacoleen Simpson

A GREEN EXCHANGE TRADED FUND THAT ENABLES INVESTORS TO TRADE THEIR CONVICTIONS WITHOUT SACRIFICING PERFORMANCE Jacoleen Simpson | Senior transactor at Nedbank Capital.

Nedbank’s Green Index outperformed the ALSI by more than 30 per cent since July 2008; an exchange traded fund (ETF) aimed at institutional and retail investors.

from June 2008 to November 2011.

South African retail and institutional investors

of corporate climate change commitment

will now be able to invest based on their

and action in the world and with more than

green convictions through the Nedbank

550 institutional investors representing

With a diversified spread across financials,

BGreen ETF, listed late last year on the JSE.

over $US71 trillion in assets supporting the

resources and industrials, the Nedbank

initiative, the CDP is a credible data source.

BGreen ETF will enable investors to gain

Judging by early feedback from investors,

The CDP surveys companies and releases

sector exposure that closely mirrors the

this exciting and innovative new investment

regular reports that can result in changes and

overall South African economy. “Local

instrument is likely to carve out a special

rebalancing of the constituents of the index.

and international evidence suggests that companies that are more aware of the risks

niche for itself in a market increasingly interested in investing in products that reflect

Explaining the target market of this new

and opportunities in the green economy also

high levels of environmental sustainability in

green-focused ETF, Nedbank Capital senior

outperform their peers,” added Simpson.

their make-up and ongoing performance.

transactor, Jacoleen Simpson, said it is aimed at a wide-ranging market: from parents

“Companies that are better positioned to

The Nedbank BGreen ETF is based on

wanting to save money for their children’s

operate in a changing environment appear

the Nedbank Green Index which was

future, to pension fund trustees wanting

to have a better chance of outperforming

launched in July 2011 as a benchmark for

an alternative benchmark to invest in, to

in the future and those that are aware of

environmentally-conscious investors and

retail and institutional investors wanting an

environmental changes and take action

a means of measuring the performance of

investment tool designed around high levels

invariably show management qualities that

companies with environmentally-sustainable

of sustainability and responsibility.

translate into sustainable performance in other areas, including financially.”

business practices. “Through this specifically themed ETF, we Forty-three companies – but this can fluctuate

are enabling a wide range of investors to

Simpson stressed that while there are more

– that form part of the Top 100 companies

trade based on their conviction in green

than 50 sustainability indices around the

listed on the JSE make up the underlying

sustainability,” she said, adding that it was

world, Nedbank Capital applied its own

constituents of the Nedbank BGreen ETF

hoped that some of the companies making

intellectual property and methodology from

which can be traded in the same way as any

up the underlying index would invest in

within its Beta Solutions range to design and

other ETF.

the ETF through their own pension funds,

fine-tune the Nedbank Green Index to ensure

further demonstrating their commitment to

appropriateness for the South African market.

sustainability.

The Nedbank BGreen ETF tracks the index

The Nedbank Green Index is a rules-based

and thus makes it tradeable for investors.

index that is based on the local data set of the Carbon Disclosure Project (CDP)

Being environmentally responsible does not

and the United Nations’ register of Clean

have to come at a cost in performance as

Development Mechanism (CDM) projects in

the Nedbank Green Index has outperformed

South Africa. Holding the largest database

the general market by more than 30 per cent

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SHAUN HARRIS

Developed markets submerged by emerging markets

No easy call for investors going into

C

hina has one of the highest growth rates in the world. It’s setting the pace for emerging markets (EM) largely at the expense of developed markets (DM). Just one reason is that intra EM trade in China is shifting the balance away from DMs. Is this going to continue next year? That’s one of the questions we’ll be trying to answer. But in DMs there are deep pockets of value that present cut-throat investment opportunities. Many institutional investors are still favouring DMs. Looking ahead to investment opportunities in both markets changes daily. We all know why

2012

Europe markets are in a mess; Greece burns, Italy plays the fiddle and Spain is battling to finance debt. That has a knockon effect on EM. Which market should investors be looking at into next year and what are the opportunities? Marriott Asset Management is in the DM camp, though it does gain fair exposure to EMs through multinational companies that have EM exposure. CEO Simon Pearse, reviewing its portfolio of offshore shares, said that the third quarter of 2011 “represented one of the most difficult quarters in financial markets since the collapse of Lehman Brothers marked the emotional low point of the banking crises in 2008”.

It always comes back to Lehman Brothers. Kokkie Kooyman, investment guru at Sanlam, calls it a “Lehman’s moment” and said the probability of a nasty outcome is increasing daily. But that’s not necessarily bad news for investors. Kooyman warned it could trigger a panic sell-off. “Just like in quarter four of 2008, companies whose earnings won’t be affected will be sold down presenting a huge investment opportunity.” That’s what investors need to be looking at in 2012 and Kooyman’s funds are a fair indicator of the opportunities as they embrace DMs and EMs. Pearse added that one attraction of DM shares is the dividend yields. “On the equity front, high dividend yields

“The global banking system has had a large clean-up and recapitalisation since 2008 and many large companies have degeared and built strong balance sheets.”

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in excess of four per cent may be had from the multinational companies listed in the US, UK and Europe.” True, but the quality companies have to be found. Many companies are on high dividend yields in DMs. That doesn’t make them good investments, especially going into next year. Shares I’ve been looking at in DMs are banks in the UK. The rating agencies have lowered ratings and the banks’ share prices have reacted accordingly, losing much value. Some of the smaller banks are basket cases but the large banks should be worth looking at going forward. Paul Stewart, MD of Plexus Asset Management, disagreed. “Offshore banks are currently bad news. Greece has received bailout packages from the European Commission, the European Central Bank and from the International Monetary Fund, yet it still owes vast amounts to banks in Germany, France, Italy and many others. These banks will, in turn, be out of pocket and therefore become more risky if Greece is unable to service its debts or if it can only pay back a portion of what was borrowed.” We know that outcome and can assume that these banks will carry the risk into 2012. The UK banks will be much the same but despite higher risk, share prices has fallen so far that it might represent investment opportunities. But Pearse reminded me that with all the debt, growth is uncertain. “You might be paying the same for UK banks, or less, in six months time.” Kooyman, who specialises in financial services, also takes a look at what this could mean for investors. He said the global banking system has had a large clean-up and recapitalisation since 2008 and that many large companies have de-geared and built strong balance sheets. “There are many companies and countries that won’t be directly affected; beer, alcohol and retail

to mention a few obvious ones. The market has been sold down aggressively already.” He added that if this does happen there will be a further sharp sell-off. “This will present an excellent investment opportunity. But remember, you don’t want to buy rubbish, you want to buy survivors; companies whose earnings have not been affected but where the share price has been dragged down with the rest.” So which companies is Kooyman buying? Remember, he’s a primary research analyst and does up to 300 overseas trips a year to go and kick the tyres of companies he’s thinking of investing in. These companies will be found in both EMs and DMs. Kooyman breaks his buy list into three sections. • Small caps: Tisco (Thailand), Power Finance Corporation, Bank of Baroda and Punjab National Bank (all three in India) • Mid/large caps: Microsoft, Ladbrokes, Tesco, Total Oil (on a seven per cent dividend yield), Renault, Imperial • Financials: Barclays, Swedbank, Svenska Handelsbanken, Citic Bank (Hong Kong), Banco do Brasil, Turkye Halk Bankasi. While DMs were favoured earlier this year by many institutional investors, there has been a swing back to EMs. Again it’s the ongoing crises in Europe, and low growth and high debt in the US, that changes investors’ daily perceptions. Shares of quality companies in DMs are cheap but investors are put off by the debt crises. One EM where shares are not cheap is South Africa. Karl Leinberger, chief investment officer at Coronation Fund Managers, commented that it has done better offshore than locally. “While global assets went nowhere, South African assets have flown,” he said. He uses a table to compare JSE companies with counterparts overseas, and nearly all are trading higher than the

offshore companies. “Most South African companies are rated at a premium to their global peers.” Coronation again favours EMs, a significant change as it is a large local investor. Why? “EMs will outgrow DMs; for reasons like low debt, demographics and urbanisation,” according to Leinberger. Anwaar Wagner, investment manager at the Electus Old Mutual Investment Group SA boutique, recently launched a global emerging markets (GEM) fund. He said that over the past 10 years there has been a strong structural shift underway, with GEMs, led by China, in the process of taking over the global leadership position from DMs. “We believe that this shift will gain strength for many years to come, due to the favourable fiscal health and demographic profiles supporting the process of urbanisation, infrastructure improvement, job creation, wealth creation and consumer spending within GEMs.” One reason he’s investing in EMs is because he feels that GEM growth is less risky as it’s less constrained by debt. He added that GEMs have become a permanent asset class. EMs are shifting world GDP growth away from DMs. “GEMs will become the main engine of global activity,” Wagner said. His conclusion should be interesting for investors in DMs. “We believe there is greater risk to a portfolio in not having exposure to the higher-return potential available in EMs.” Wagner launched his fund at a good time. DMs, despite ample investment opportunities, now carry country risk. It used to be the other way around. That’s the choice investors face going into 2012; a case of double vision. Long-term investors need exposure to both EMs and DMs in the year ahead.

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13


PROFILE | Chief Investment Officer at Investment Solutions

G lenn S ilverman

GS C hief investment O fficer at I nvestment S olutions

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S

“Investment Solutions remains cautious on the global outlook, recognising the enormous challenges the world faces, particularly the developed world, regarding the high levels of government and consumer debt.”

You head up an investment team of more than 20 across the SA and UK. How do the two regions differ? There were initially two investment teams, one based in the United Kingdom, the other in South Africa. However, all assets, local and global, are now managed from SA. Over time, the company learned the specific requirements of the SA clients and assets, including those governed by new Regulation 28 changes, as well as cultural and translation gaps between the two teams. This meant it was more effective to manage both aspects from SA. Technology, globalisation and the expertise of our SA team have all assisted in this transition. In theory, managing money across the globe requires the same expertise, but local nuances are relevant and need to be taken into account. The countries are very different, with the UK having many more managers, funds and so on, but the principles are very similar. What differentiates Investment Solutions from other asset-management firms?

debt. It expects further intervention by the authorities, further volatility, and hence a difficult environment for investors in general. Beliefs, assumptions and strategies will be well tested in the quarters and years ahead. The company’s sense is that strategies that can deal with and possibly even profit from volatility incorporating multi-asset class solutions are to be preferred. Diversification at all levels remains a critically important component. Investment Solutions will remain defensive and cautious and will continue to seek to invest in good-quality assets and/or managers, whatever the competing allure. How has the investment industry changed since you started? Certain things have changed immensely and others not at all. The constants are the vagaries of the markets and the human aspects of fear and greed. Also, diversification between managers and asset classes remains a core fundamental principle, as does the relevance and need for sound advice and strategies.

The company is a multi-manager rather than a traditional asset manager. That means it doesn’t buy or sell underlying instruments but rather scours the globe for the best asset managers according to asset class to which it can allocate money. Investment Solutions is the largest and leading multi-manager in SA by assets and in terms of its unique manager assessment and ranking systems (MARS) process, which is predicated on and incorporates separate complementary qualitative, technical and portfolio scores.

The elements that have changed the most are technology - for instance, the speed at which information is transmitted and shared globally; the global nature of the world and its related asset classes, which are more correlated and inter-connected; the scale of the systemic issues; and challenges facing the Western capitalistic system.

In the current turbulent environment, what is the best advice for investors?

I am an accountant by training and entered the industry almost by chance. I joined Liberty Asset Management (LIBAM), where a number of my friends worked. I had very little background in asset management or markets so I had a lot to learn. I remember LIBAM CEO Roy McAlpine saying to me: “You’ve read your last fiction book for many years to come,” and boy, was he right!

Investment Solutions remains cautious on the global outlook, recognising the enormous challenges the world faces, particularly the developed world, regarding the high levels of government and consumer

For those considering the industry now, I strongly suggest they do the Chartered Financial Analyst (CFA) course to ascertain whether this is where their heart lies - it helps to be passionate about what you do. Then pick either a great company or join a start-up with huge potential, and read and learn as much as you can. I would prefer a more multi-disciplinary rather than a specialist focus of knowledge and experience. How important do you think the role of a financial planner is for investors? It depends: for investors who are largely uninformed, a reputable and accomplished financial planner, who truly has their interests at heart, can be a huge plus or even a necessity. For those few with the time, focus, experience and aptitude for markets, a planner is less necessary. How do you wind down from the pressures of your position? I have three escapes – my family, my sport and my religion – all of which force me to take some time out, though in different ways. Nevertheless, I am pretty absorbed in what I do, and it’s hard to escape markets for long either because they’re constantly moving (and you with them), or simply because I miss them. It can be quite addictive. How do you define success?

How did you get into this industry and what advice would you have for someone entering it now?

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A good question, and not easily answered. I think it’s partly a state of mind - a sense of contentment within yourself. It’s partly about setting and achieving your goals. It’s also about ensuring that what you do aligns with your core beliefs, passions and values. It is multi-faceted and not easily defined or achieved.

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HEAD TO HEAD | BoE Private Clients

BoE Private Clients D aryll

O wen

CIO for BoE Private Clients

1. 2011 was a tumultuous year for investors. Do you expect more of the same in 2012? As 2011 unwound, the debate started to reflect on what was termed a ‘soft patch’ as global growth started decelerating. This was exacerbated by a number of factors such as the geopolitical unrest in Africa and Asia, the earthquake in Japan, the escalation of the European sovereign debt issues and rising inflation in emerging markets that necessitated tighter monetary policy. Over the next year (and beyond), we will still be faced with a number of challenges, the most important being a resolution to the current debt crisis in Greece and, more importantly, for the authorities to prevent contagion – spilling over to Italy and Spain for example. So yes, 2012 will be very challenging. 2. What are the biggest challenges investors will face in 2012? By far the most important challenge will be the resolution of the European debt crisis. In addition, global growth will be fairly muted next year, particularly in the developed world. China is also showing some signs of stress, for example in the property market (particularly for developers). Expect GDP growth in China to be less robust than was previously the case. In addition, 2012 is an election year in the US; while at home, politics will also play an important role with the upcoming ANC party congress in Mangaung, which will confirm the party ’s leader and its presidential candidate for the next general election.

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3. Is there still value to be had in local equities? The equity market is down on a year to date basis. The JSE ALSI index is trading on a one-year forward PE of around 11x, which is relatively attractive given the 15year mean of around 14x. When choosing shares in which to invest, select good quality, financially sound companies. 4. Should investors be looking offshore? Yes, for a number of reasons. Diversifying your risk by investing in diverse geographic locations is prudent investment policy. There is value in global equity markets despite the current turmoil and there are very good asset managers with proven track records who are able to identify the attractive markets, sectors and individual companies. 5. What asset class will outperform? From an international perspective, global bond yields have fallen to record low levels and interest rates on deposits are barely above zero per cent. It is therefore very likely that global equities should outperform over the medium term. On the local front, equities should outperform but the returns from bonds and property will still be reasonable over the medium term. 6. Should investors stay cautious until the current global debt crisis plays out? Staying cautious is a relative term depending on the individual. If you are young and have a high-risk tolerance, staying cautious may mean keeping 10 per cent in cash. The point is that you should

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always invest according to your own risk tolerance levels. Being overly cautious could, for example, result in missing great buying opportunities – a situation which typically comes about when everyone is overly pessimistic. 7. For those who are sticking with money market funds, is this the correct thing to do? This is partly answered above. Keeping a portion of your funds in money market instruments is an important part of managing your total assets. The percentage that you keep in money market funds is however dependent on factors such as your age, risk tolerance and financial situation (extent of liabilities). To keep all of your money in money market funds means that you are likely to underperform in real terms over the long term. Trying to time the markets perfectly, i.e. waiting for the exact time to take money out of money market funds to put into equities, for example, is hazardous and is in reality very difficult. 8. What would be your advice to investors in 2012? Stick to your long-term plan. Ensure that your investment mandate matches up to your risk profile. Seek professional assistance/guidance and don’t look for ‘hot tips’. Understand that you can never eliminate risk, but seek to identify it, understand it and get adequately compensated for it.


HEAD TO HEAD | Momentum Investments

Momentum Investments J onathan

S tewart

CIO for Momentum Asset Management

1. 2011 was a tumultuous year for investors. Do you expect more of the same in 2012? The uncertain, risk-on/risk-off pattern seems likely to persist in the pedestrian economic growth environment that is expected in 2012 and investors will once again be challenged to keep their wits about them and to remain committed to their long-term investment strategies, which should have been soberly designed in the light of a clear understanding of their needs and objectives. 2. What are the biggest challenges investors will face this year? This would be material risks surrounding the unwinding of fiscal excesses that have built up over many years especially in Europe and the US. The exact manner in which this inevitable adjustment will occur in an increasingly febrile and fractious political environment is extremely uncertain. As a result, high impact market events remain possible; however, their probabilities remain hard to assess with any certainty. With this in mind, it is likely that the markets will continue to be volatile and short-term oriented, reacting violently to every piece of new information that comes to light. 3. Is there still value to be had in local equities? While there is some value in the SA equity markets as a whole, there are quite big differences in the valuations across different sectors, with defensive sectors now materially more expensive than cyclical sectors as investors have sought safety in the current uncertain environment. However, given the

high level of volatility that exists in markets at present, taken together with a wide array of possible risk events that exist out there, we would argue for a cautious stance with a bias in favour of cheap, quality stocks with a sustainable dividend underpin. 4. Should investors be looking offshore? As the old saying goes, diversification is really the only true free lunch in finance. This is arguably still true, notwithstanding the recently higher than typical correlations across risk assets. With this in mind, investors should seek a diversified posture across different asset classes, both domestic and offshore, as a prudent strategy to the achievement of their longterm investment objectives.

looking over extended time horizons, where the uncertainties surrounding the corrosive effects of inflation are more important, cash is far from riskless. 8. What would be your advice to investors in 2012? Unfortunately we are not licensed to offer advice in this regard. However, keeping in mind the market volatility over the past year, investors should continue to remain cautious in light of the challenges that still lie ahead.

5. What asset class do you think will outperform? Momentum Asset Management is a value investor with a long-term view on asset classes. It is therefore not in our nature to offer short term views. 6. Should investors stay cautious until the current global debt crisis plays out? Absolutely, as mentioned earlier, high impact market events remain possible; however, they are hard to assess with any certainty, therefore we expect market volatility to continue. 7. For those who are sticking with money market funds, is this the correct thing to do? It is worth noting that while cash is the safest asset class over shorter time horizons; when

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ASSET MANAGEMENT

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F

ollowing months of market turmoil and major slumps in equity markets around the world, a number of local asset managers are increasingly looking to the South African stock market, which they believe is offering reasonable value. However, while opportunities do exist, equities remain vulnerable to the contagion effect of further global growth shocks and the future policy action by European authorities. Peter Linley, head of Toros Equity, a boutique within the Old Mutual Investment Group SA (OMIGSA) stable, said that following the announcement that Greek debt is to be written down by 50 per cent, further action by European leaders needs to be convincing. He said too much is at stake for politicians and policy makers to disappoint, and the vacuum created by lack of action negatively impacts growth and employment. However, Luigi Marinus, investment analyst at Plexus Asset Management, said the reaction to the EU policy on Greece is not likely to drastically impact markets. The reaction has already been priced in – as the response to the recent announcement was largely positive. “South Africa will follow world markets and will possibly gain even more if a risk-on scenario continues.” In the medium term, Marinus said South African stocks seem to be fairly priced compared to historical levels. “On a relative basis, compared to other asset classes, stocks offer some value as short rates are quite low and bond yields have come off in recent months. In absolute return terms, we believe returns will continue to be choppy.” However, not all asset managers believe South Africa is the place to be for equity value. Craig Massey, director of stockbroking at SPI, suggested that there is more value to be had by looking further afield. “Offshore equities should be the preferred asset class for long-term investors. South African equities have performed extremely well over the past decade, but now we believe there may be better value offshore.”

“The three spikes in volatility since the financial crisis in 2008 have led to an extreme level of fear among investors. Although the JSE is only down three per cent since the beginning of this year and the Dow Jones is basically flat, for investors it feels a lot worse because of the volatility.” On the local and global economic outlook, SPI believes it is unlikely that the world, or South Africa, will suffer a double dip recession, arguing instead that it is more likely the developed world would grow slowly and that emerging economies would continue to grow at a higher rate, maintaining demand for commodities and underpinning overall growth in the world economy.

“As an industry, we have consistently pointed out to investors that they are unlikely to achieve inflation-beating returns over the long term by holding their cash in interestbearing investments like money market funds.” Linley agreed, noting that he does not expect a full-blown global recession. “We believe that the growth outlook will remain challenging in developed world economies, but emerging markets will fare better.” INVESTORS MOVING INTO ASSET ALLOCATION FUNDS Investors are finally starting to see pockets of value in the equity market, despite the turbulence in the third quarter of 2011, according to the latest official statistics of the local collective investment schemes (CIS) industry.

Significantly, Massey said that while foreign investors had looked for a 30 per cent risk premium to invest in South African shares over the past 30 years, this premium had now dropped to around 15 per cent, indicating that local equities were not offering relative value to international counters on a risk-adjusted basis.

Strong net inflows of R15 billion were recorded in the third quarter of this year, marginally lower than the R18 billion in net inflows attracted in the first quarter of this year, but a big improvement on the second quarter when net inflows amounted to just R4 billion.

Linley noted that after enjoying a steady recovery for more than two years, equity markets have had a rough ride in 2011.

Leon Campher, CEO of the Association for Savings and Investment South Africa (ASISA), said that the CIS industry has attracted net

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inflows of R36 billion during the first nine months to September 2011, bringing total assets under management to R960 billion. He added that an important development is the fact that the domestic asset allocation category is threatening to topple the domestic fixed interest money market category from its number one position with assets under management of R256 billion, equivalent to 27 per cent of total industry assets. Meanwhile, money market funds totalled R264 billion, or 28 per cent of industry assets. “As an industry, we have consistently pointed out to investors that they are unlikely to achieve inflation-beating returns over the long term by holding their cash in interest-bearing investments like money market funds. Capital growth can be achieved only by investing in equities over the long term. We have, however, also acknowledged that pure equity investments are not for the faint-hearted and that the average consumer is unlikely to remain committed to an investment that is subject to extreme volatility.” Jeremy Gardiner, director at Investec Asset Management, said the figures suggest that despite the volatility in the third quarter, investors are starting to believe that markets are beginning to show value. “This, combined with more concrete attention across the Eurozone to find solutions to the region’s problems, is clearly starting to remove some of the panic and fear that saw investors retreating in the second quarter.” Gardiner noted that the R10.5 billion leaving money market funds in the third quarter, similar to the outflows from money market funds in the second quarter, suggests that investors are cognisant of the fact that their cash investments are barely beating inflation and are choosing to direct their investments in equities, fixed income funds and multi-asset funds. “Although South African stocks are certainly not exciting at the moment, investors do need to be careful of allowing volatilityinduced fear to leave them in cash for too long. In a world where interest rates are going to remain lower for longer and bond yields are under pressure, equities are probably the place to be over the medium to longer term,” added Gardiner. “They should – once the volatility passes – provide inflation-beating returns, returns which investors will have to be thankful for as the stock market is unlikely to provide returns far in excess of inflation for at least the next five years.”

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Star Manager Confidence Index

SA’S STAR MANAGERS UNVEIL THEIR PREDICTIONS FOR 2012

By Miles Donohoe

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A

t the end of 2011, INVESTSA launched its Star Manager Confidence Index to ascertain the confidence levels of chief investment officers at a number of South Africa’s leading asset managers.

As one would expect, the results show a huge variation in opinion on a number of key issues including the outlook for equities, which asset class will deliver the top returns over the next 12 months, and which sectors will be the top performers – but despite the expected variation in opinion there is some common ground in significant areas. Overall, the outlook remains relatively positive, given the state of the global economy, with a 60 per cent confidence level that the JSE ALSI will deliver positive returns over the next 12 months. Yet conversely, this does mean there is a 40 per cent expectation that the market won’t deliver real returns. On their confidence level regarding the likelihood of South African equities outperforming offshore equities over the next 12 months, respondents were the least optimistic on all categories with only 45 per cent expecting local stocks to outperform. This is perhaps to be expected. In October 2011, Maya FisherFrench noted that while many investors have been disillusioned with their returns over the last 10 years, asset managers are arguing that now is the right time to invest offshore, as valuations have finally come back down to reasonable levels. The idea that offshore equities may outperform local equities is also borne out by the fact that only 55 per cent believe equities will be the best performing asset class locally over the next 12 months. When asked which asset class would deliver the best returns over the next 12 months, equities still came out trumps, closely

QUESTION How confident are you that the JSE All Share index will deliver positive real returns over the next 12 months? How confident are you that equities will be the best performing asset class over the next 12 months? How confident are you that South African equities will outperform offshore equities in the following 12 months? Which sector do you expect to be the best performer in the following 12 months? Which asset class do you expect to deliver the best returns over the next 12 months? What is your top stock pick over the next 12 months? Please explain briefly why you picked this stock. Which individual do you rate as the top equity fund manager in SA over the last five years?

followed by listed property. However, an interesting point for investors to take heed of was that cash also figured strongly in this category (albeit on a risk-adjusted basis).

“On their confidence level regarding the likelihood of South African equities outperforming offshore equities over the next 12 months, respondents were the least optimistic on all categories with only 45 per cent expecting local stocks to outperform.” On the best performing sector over the next 12 months, confidence was evenly split between industrials and resources. Telecoms did receive one vote of confidence in the top sector, which may also be borne out by the top stock pick which turned out to be MTN on the basis of its defensive earnings stream and the fact that it remains a good Rand hedge. While the stocks themselves may have been different, two gold companies – AngloGold and Goldfields – both emerged as potential top picks for the year ahead, largely based on the assumption that the gold bullion price is holding up well, and could go higher if the European situation gets worse. Perhaps the most contentious and closely fought category was that of the top equity fund manager in South Africa over the last five years, with Investec’s John Biccard emerging as the favourite.

CONFIDENCE LEVEL / RESULT 60% 55% 45% Industrial and resources Equities MTN John Biccard

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blue ink

Global hedge fund investments from a South African perspective Kevin Ewer | Portfolio manager at Blue Ink Investments

H

edge fund investing can be a daunting task, especially for South African investors looking to put assets to work globally. The South African market has been fortunate to have seen the hedge fund industry evolve under strong institutional influence, but the global market has evolved under different dynamics. The local hedge fund industry started with a few pioneering managers in the late 1990s to early 2000s, who left larger asset managers to start their own hedge funds. These were typically small and the investor base was restricted to high net worth individuals and some smaller wealth management firms. Within a couple of years though, institutional money entered the market. As this money flowed into the funds, significant transparency demands were made. This coupled with the use of very vanilla, off-the-shelf structures for the hedge meant that the bar, in terms of operational standards for local managers, was set very high and became less of a concern. Investors were able to focus on the investment case made by the funds, which was also aided by the strategies available being pretty standard, liquid and easy to understand. Globally the hedge fund industry followed a very different path. There was a much longer period in which hedge funds were reliant on non-institutional capital and, as a result, when institutional capital started to be invested enmasse into various hedge funds, many were large, established businesses able to dictate the terms on which they would accept and run money.

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The funds themselves tend to be domiciled in far flung jurisdictions like the Cayman Islands, British Virgin Islands and Bermuda, which have lighter regulatory controls. This means investors are confronted with a significant operational hurdle before they can even consider the investment case of a fund. Coupled with the wide variety of strategies available, this means that investing in global hedge funds presents a far more daunting prospect when compared to allocating to South African funds. So what should investors look at when setting risk/return objectives on global hedge fund mandates? The level of return of the indices can provide a guide as to the potential minimum acceptable long-term level of return, but from a risk perspective, you need to set goals that encourage capital protection over the taking of beta risk. Particularly for fund of hedge fund allocations, you should be looking for a profile where performance in difficult markets is emphasised and be happy to accept some performance drag in bull markets. Operationally, the global hedge fund environment has challenged many South African investors. However, lessons learned over the years can significantly reduce the operational risk taken. Firstly, your global hedge fund investment manager should be based in the major hedge fund centres of London or New York. Only this way can they be truly on the ground and able to do the necessary work sourcing potential hedge funds and investigating the operational environment. Doing it from a South African base is sub-optimal

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and leads to corners being cut. Secondly, it’s critical to take the time to read and question all the documentation of potential investments.

“Operationally, the global hedge fund environment has challenged many South African investors. However, lessons learned over the years can significantly reduce the operational risk taken.” Accepting at face value what the manager says is insufficient and many operational issues have been easily identifiable for someone who actually studied what was given to them. Thirdly, you need to approach the investigation into operational credibility in the same way as a private investigator. It’s not uncommon for global hedge fund allocators to hire private investigators to look into the hedge fund manager’s background. In conclusion, while the global hedge fund market presents numerous challenges, it should not be ignored and with standards being raised significantly since 2008, it is now a vastly improved environment that can offer investors an excellent risk-return pay-off profile as a component of their overall portfolio.


fund profiles

Allan Gray Stable Fund

How have you positioned the fund for 2012? At the current high prices for most South African shares, we believe that the risk of loss from holding shares over the next two years is unacceptably high for the fund. This is evident in the net equity exposure, which is only 18.8 per cent at present, with the majority of the equity exposure coming from investments outside South Africa.

Please outline your investment strategy and philosophy for the fund. The Allan Gray Stable Fund aims to provide a high degree of capital stability and to minimise the risk of loss over any two-year period, while producing long-term returns that are superior to bank deposits on an after-tax basis. The fund invests in a mix of shares, bonds, property, commodities and cash. The fund may buy foreign assets up to a maximum of 25 per cent of the fund. It typically invests the bulk of its foreign allowance in a mix of funds managed by Orbis Investment Management Limited, our offshore investment partner. The maximum net equity exposure of the fund is 40 per cent. The net equity exposure may be reduced from time to time using exchange traded derivative contracts on stock market indices. What are your top five holdings at present? The top five shares are: • BAT • Sasol • SABMiller • Remgro • Anglogold Ashanti

The bulk of the fund’s exposure to South African shares is currently hedged by a short position in futures contracts on the FTSE/JSE Top 40 Index. This allows the fund to benefit should its stock selections outperform the overall market while substantially reducing its exposure to the overall direction of the stock market. The fund has maintained its full foreign exposure. Please provide some information around the individual/team responsible for managing the fund. Ian Liddle – Chief investment officer Liddle graduated from UCT and joined Allan Gray in 2001 as an equity analyst after several years as a management consultant. He has been managing a portion of client equity and balanced portfolios since January 2005, when he was appointed as a portfolio manager. In February 2008, he was appointed as chief investment officer, with overall responsibility for the investment team and portfolio management. He is a director of Allan Gray Proprietary Limited. Please provide performance of the fund over one, three and five years (please include benchmark). The fund’s benchmark is the return of call deposits (for amounts in excess of R5 million) with FirstRand Bank Limited plus two per cent, on an aftertax basis at an assumed tax rate of 25 per cent.

Who is the fund appropriate for? The fund is suitable for those investors who: • Are risk-averse and require a high degree of capital stability. • Seek both above-inflation returns over the long term, and capital preservation over any two-year period. • Require some income but also some capital growth. • Wish to invest in a unit trust that complies with pension fund investment limits. Have you made any major portfolio changes recently? Most things went the fund’s way in the third quarter of 2011, which is somewhat unusual. We therefore took profits on some of the winning positions – for example we reduced our position in the Newgold debenture.

1 year

3 years

5 years

Allan Gray Stable Fund *

11.7%

7.9%

9.0%

Benchmark * **

5.0%

6.3%

7.2%

* Fund and benchmark performance adjusted for income tax at an assumed rate of 25 per cent. ** The return of call deposits (for amounts in excess of R5 million) with FirstRand Bank Limited plus two per cent; on an after-tax basis at an assumed tax rate of 25 per cent (Source: FirstRand Bank), performance as calculated by Allan Gray as at 31 October 2011.

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• Process is consistent but applied dynamically to reflect changing market conditions. Who is the fund appropriate for? This fund is appropriate for all investors seeking wealth preservation with the potential for growth. Its purpose is to protect assets with steady growth. It’s not a volatile aggressive fund so investors seeking growth at any cost would not fit well within this mandate. This is neither a fund which has no risk and therefore no growth potential. The manager and team have a rigorous approach to managing risk and seek good value investment opportunities. It is for the more conservative investor or can be used as the core to an investment strategy.

Ashburton Euro Asset Management Fund Profile

How have you positioned the fund for 2012? We turned more cautious in our multi-asset funds/portfolios in mid-July when Italian bond yields were signalling a deteriorating European crisis while equities remained close to their highs of the year. Following the initial declines in equities in August, markets have been extremely volatile as investors try to price seemingly binary outcomes related to the European debt crisis. Tactically, we have scaled equity positioning to take advantage of some of these large swings, temporarily increasing equity weightings from late September to mid-October. Following the correction towards the end of November 2011, we added modestly to equity weightings again. Our current stance reflects a regional overweight position in US and Asia ex-Japan equities. Earnings momentum is relatively stronger in the US than elsewhere, while we believe HK/China stocks will perform better as expectations of looser Chinese monetary policy gather momentum. Accordingly, on a regional basis we have small underweight positions in Japan and Europe.

Snapshot of the Fund • The fund aims to achieve above-average returns with belowaverage risk. • Specialist expertise in tactical asset allocation. • Nineteen-year track record. • Flexible approach. • Derivatives used for hedging purposes and efficient portfolio management. • Highly liquid investments (95 per cent directly held equities, bonds, futures and options). Philosophy • Global valuation and expected-returns analysis performed across asset markets. • Macroeconomic views formed in-house (supported by internal and external research). • Identify asset prices that appear inconsistent with macro fundamentals as opportunities. • Assessment of sentiment and consensus beliefs used to identify existence of behavioural biases. Similarly, inter-market inconsistencies are sought to identify relative value opportunities. • Portfolio consists of structural medium-term and short-term positions.

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- Within bond markets, we favour corporate bonds and selected emerging market exposure (e.g. Mexico, Brazil, Turkey, Singapore, South Korea and SA). Returns from G7 government bonds will be very low going forwards, although the perceived safe havens (US, UK and Germany) offer diversification in times of crisis. - Within FX markets, we expected emerging Asian and selected EM currencies to outperform the majors over the medium term. Swings in the US Dollar versus other major currencies will be dictated largely by sentiment towards the European debt crisis. For that reason, we expect the US Dollar to provide diversification against the Euro or Sterling at times when risky assets perform poorly. Please provide some information around the individual/team responsible for managing the fund. Hanson is Ashburton’s Head of Asset Allocation and joined the company in 2008. He has responsibility for Ashburton’s multi asset funds, total return bond funds and related research. He holds a masters in public administration in international development (MPA/ID) from Harvard University’s Kennedy School of Government and a BA (Hons) in economics from Durham University. Hanson attained the Securities Institute Diploma in 2000. Please provide performance of the fund over one, three and five years (please include benchmark).

1 Year

3 years

5 years

Ashburton Replica Euro Asset Management

2.58%

21.66%

12.70%

Europe OE EUR Moderate Allocation

-4.04%

10.59%

-8.42%

* Data as at 31/10/2011

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04/03/2011 16:03


The Foord Flexible Fund of Funds What are your top five holdings at present? As at the end of November 2011, the fund’s top five local equity holdings were Anglo American, BHP Billiton, SAB Miller, Aspen and Bidvest, reflecting a preference for stable blue chip counters in an uncertain market environment. Some 38 per cent of the total fund was allocated to foreign investments (including equities, cash and commodities). Over the past year, the fund’s structure has remained relatively stable with a marginal increase in foreign assets at the expense of local property and commodities. Who is the fund appropriate for? The fund is suitable for investors with a moderate risk profile (which corresponds with the fund’s relatively low volatility and low risk of loss) who desire long-term real returns, but who do not require a high income yield. Furthermore, investors in the fund enjoy the application of industry doyen Dave Foord’s best investment view across all asset classes, which obviates the need for the investor to make a separate decision regarding local and offshore exposure.

Please outline your investment strategy and philosophy for the fund. The philosophy of getting the big calls right, buying at the right price, taking a long-term view and diversifying appropriately (which necessarily means enough, but not too much) enjoys its fullest application in the Foord Flexible Fund of Funds. The result manifests over the long term with returns appreciably in excess of inflation and a low risk of loss over periods exceeding one year. It is the lack of constraints in the fund mandate that make the attachment of the moniker ‘flexible’ so suitable. While other funds might be constrained by exposure to a single asset class or by limits to the extent of exposure to asset classes, the flexible fund allows the fund manager to exercise full discretion in delivering an optimal return for a given level of risk; this involves investing across all asset classes both in South Africa and overseas. This is not to say that undue risks are taken; rather, particular high conviction views may be implemented fully. As such, the flexible fund lends itself to being compared to an absolute yardstick: in the case of the Foord Flexible Fund of Funds, this benchmark is CPI plus five per cent per annum, measured over rolling three-year periods. The fund is positioned consistently with the Foord investment team’s expectations: it has no exposure to government bonds or listed property as the risk of interest rate increases is greater than the converse.

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Please provide performance of the fund over one, three and five years including its benchmark. 1 year (to Nov 11)

3 years (to Nov 11)*

Since inception (April 08)*

Foord Flexible Fund of Funds

15.8%

15.8%

9.3%

Benchmark

10.9%

10.1%

11.9%

* Annualised figure Please outline fee structure of the fund. Consistent with Foord’s long-standing approach to cost minimisation, no initial fees are levied. The annual management fee is a performance fee with the daily charge rate adjusted according to the fund’s performance relative to that of its benchmark. The performance fee is calculated and accrued daily based on the relative return for the preceding day. The fee at benchmark is 1.0 per cent plus VAT, the performance fee sharing ratio is 10 per cent and a minimum fee of 0.5 per cent plus VAT applies. Why would investors choose this fund above others? In an industry where investment choice is excessive, the Foord Flexible Fund of Funds is a simple choice for investors seeking meaningful real returns and careful risk management and who would prefer to delegate portfolio asset allocation decisions to an investment manager with a proven long-term track record of doing so.

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Old Mutual Real Income Fund This is a moderately conservative risk fund with a risk rating of 2 on Old Mutual’s rating scale out of 5. The fund will have a greater volatility than traditional income funds, but a lower volatility than most asset allocation funds, due to the relatively lower equity content. Risk is typically managed through exposure to short- and long-term instruments, as well as through the use of hybrid instruments, such as convertible bonds. How have you positioned the fund for 2011? Old Mutual unit trusts recently concluded a successful ballot on this fund, and as of 1 November 2011, offshore assets are included in the fund. The fund will also continue to comply with Regulation 28 of the Pension Funds Act and hence the stipulated maximum investment of 25 per cent offshore. The fund manager will use the offshore capability tactically when he sees opportunities in the market to enhance yield and we have agreed a current targeted maximum of 10 per cent for the inclusion of offshore assets. Currently the fund has a relatively high holding of money market instruments, bonds and property to protect against equity market volatility. Nonetheless, the manager acknowledges that in the current low interest rate environment it is crucially important to use asset classes like equity and property to generate additional returns.

Peter Brooke, Head of Macro Strategy Investments, Old Mutual Investment Group (SA) Please outline your investment strategy and philosophy for the fund. The Old Mutual Real Income Fund is an actively managed, multi-asset class fund that aims to generate an income that grows in line with inflation, while sustaining the level of capital over time and minimising any losses over a 12-month period. It offers higher long-term growth potential than more conservative funds such as money market and income funds, due to some exposure to equity markets. Its return objective is CPI + three per cent per annum (gross of fees). The fund can invest in the full spectrum of fixed interest investments, selected listed property and equities and may invest up to 25 per cent of its portfolio offshore in line with Treasury guidelines. The combined listed property and equity exposure is carefully managed and may not exceed 35 per cent of the overall portfolio, but a maximum of 25 per cent can be held in either asset class. The fund is Regulation 28 compliant. Who is the fund appropriate for? This fund is particularly suited to investors who require an income stream from their investment while maintaining scope for inflation-beating growth on their capital. It is suitable as a low-risk investment in retirement and is especially suited to clients who are facing the inflation challenge, as it combines the objective of income generation with capital growth in line with inflation. It provides investors who want to protect the purchasing power of their income with a complete solution over a longer investment horizon.

Please provide some information around the individual/team responsible for managing the fund. Peter Brooke, head of the Macro Strategy Investments (MSI) boutique at Old Mutual Investment Group (SA) manages the Old Mutual Real Income Fund. Brooke joined Old Mutual Investment Group South Africa in May 2005, having previously worked as head of research and head of equities at Cazenove South Africa for 10 years. He is backed by a diverse team of eight experienced investment specialists at MSI, who manage or advise on more than R200 billion of multiasset class portfolios across the risk-return spectrum. Brooke is responsible for stock picking and asset allocation, integrating top-down (macro) drivers with bottom-up analysis and valuations to create an optimal portfolio. At the same time, the fixed-income component of the fund is actively managed by Wikus Furstenberg, senior portfolio manager at Futuregrowth Asset Management, who has specialist skills when it comes to exploiting market opportunities using bonds, money market instruments and preference shares. Please provide performance of the fund over one, three and five years (please include benchmark). One year

Three years

Five years

Old Mutual Real Income fund

7.71%

11.98%

9.47%

Benchmark (CPI+3% p.a)

5.94%

4.74%

6.82%

*Source: Morningstar and OMIGSA. Fund performance as at 31 October 2011. Why would investors choose this fund above others? The Old Mutual Real Income Fund recently topped the R2 billion assets under management mark. A star performer in the Old Mutual unit trusts’ stable, the fund has delivered consistently exceptional performance for its investors. To 30 September 2011, it has been a top-quartile performer in the domestic asset allocation – prudential low equity category over periods of two, three, four and five years. As the fund is a low-risk asset allocation fund, it has attracted keen investor interest over the past year and is well positioned to help investors meet the twin challenges of managing an income and generating inflation-beating growth.

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Maya Fisher-French

Investment clubs How to tap into group savings By Maya Fisher-French

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nvestment clubs are growing in popularity and are a natural extension of the stokvel. People across all demographics are finding that investing in groups is a powerful way to save.


The Old Mutual Savings monitor showed that despite the recession and job losses, savings clubs reported an increase in the level of savings. Around one third of South Africans save via savings clubs, and in black communities every second person saves via a club. What the findings also show is that these clubs are popular across all levels of income with 30 per cent of high-income earners saving in groups. Investment clubs offer a great opportunity for a financial adviser to tap into a new network.

“There are significant advantages to working with a club. Firstly it is a good client acquisition strategy, through one person you are introduced to 10 people.”

Craig Gradidge of Gradidge-Mahura Investments has focused his business around investment clubs and advises groups, from young professionals who have just started to older members who have substantial savings and have formed investment companies. His clients have investments ranging from unit trusts to share portfolios, property and even private equity. He came across investment clubs on a chance meeting with a member of an investment club at a presentation he was doing on the Sasol Inzalo deal. She asked him if he could work with them and he saw an opportunity. “We recognised the potential and made it a focus of our business.” There are significant advantages to working with a club. Firstly it is a good client acquisition strategy, through one person you are introduced to 10 people. You have a chance to demonstrate your capability and professionalism to the group, which may then translate into working with the individuals on their financial plans. The pooling of assets also makes it more feasible to tap into younger professionals who may just be starting to save R500 a month. In an investment club of 10 people, that is R5 000 a month. As an adviser you would work with the group to educate them about portfolio strategy and help them to create and reach their investment objectives. You are also a sounding board for investment decisions and often act as an arbitrator if they reach a deadlock. Gradidge said that he has learned a lot from the groups as he is dealing with people from diverse professions and they give different perspectives, but this can also be a challenge. The power of the group is also its downfall especially when trying to make a joint decision; if someone has a difference of opinion, the inevitable discussions that follow often mean that the opportunity is missed. Before you commit to a group as an adviser, you need to determine the sustainability of the club. Members may be all raring to go in the beginning but once the challenges of administration and group dynamics start, the enthusiasm fades. Often the group disintegrates after you have invested a significant amount of time in it. You are also now associated with something that didn’t work. Groups that are

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more likely to be successful are those that are homogenous, in other words the members are all in a similar stage of their lives and they have similar objectives. Gradidge added that you need to spend time understanding the risk tolerance of the individuals, they need to have the same level of risk tolerance otherwise they will struggle to agree on a strategy. Shaun van den Berg, head of client education at PSG Online, works with several investment clubs and said that having an investment strategy is key, especially around the type of assets they want to invest in. Having a clear strategy or philosophy is vital in dealing with disagreements about investment decisions and these should be dealt with in the founding documents of the club. But this does take a significant amount of time. Gradidge said that creating an investment philosophy can be time consuming. “It can be anywhere from four to six hours; that is the length of time you have to invest.” Both Van den Berg and Gradidge agree that setting up the club and its administration is often the death-knell of clubs. Members want to start investing immediately but it takes time to set up the structure, especially with legislation around FICA. Gradidge advised that there are two approaches. Firstly, you get involved only once all the administration is in place; otherwise you become the administrative guy and lose money or become too expensive for the club. The alternative is that you make investment clubs a key driver of your business and hire someone to help the clubs with their administration. This would be a differentiator for your business. Investment clubs can be rewarding both professionally and emotionally but it takes commitment and you need to have a set strategy on how you interact with your club. Tips to working with investment clubs • Make sure they are organised. If they don’t have a clue, the club will not last long. The record keeping must be current; they must have a constitution and have dealt with FICA requirements. • Be patient and think out the box. You are used to dealing with the decision maker, now you have six different answers. You need to deal with the complexity. • Understand peculiar characteristics of your client. Young professionals want the sexy investments, they don’t want to hear about diversification, so you need to explain and educate them. • Don’t get sucked into the administrative issues unless you are prepared to hire someone to manage it.

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ALTERNATIVE INVESTMENTS

In Search of Positive Returns In Down Markets “Picking the right equity manager can help you outperform the equity index, but what happens in a year when equity is down say, thirty per cent?” Leila Lederman and Andre Tonkin, Peregrine Portfolio Innovation (Pty) Ltd

T

he holy grail of investments is the seemingly elusive combination of down-side protection and superior after-fees performance. It is through this combination that the powerful effect of compounding is able to create real long-term growth in investment portfolios. This combination is attainable for investors who are sophisticated and savvy enough to scour the investment landscape in search for fund managers who have above-average skill, a sensible yet flexible mandate and whose management companies are operationally sound. The part of the investment landscape that we are talking about is the often little understood hedge fund industry. If the right funds and fund managers are selected, investors have the opportunity to actually grow their assets even in severe market downturns. Picking the right equity manager can help you outperform the equity index, but what happens in a year when equity is down say, thirty per cent? Even the best traditional equity manager is extremely unlikely to have a positive return in such a scenario and this is where the additional tools available to hedge fund managers come in. How do hedge funds produce positive returns in down-markets? Many hedge fund strategies, such as typical

market-neutral strategies, are not built around the direction of the market but rather around specific incorrect pricings that may occur at a point in time. For example, if a hedge fund manager believes that Shoprite is under-priced relative to Pick n Pay, they could ‘short’ Pick n Pay (i.e. enter a contract where they profit if the price falls) and buy Shoprite shares. This means the overall exposure to the market and even the retail sector is close to zero. If the whole market rallies or plummets, they will still only make a profit or loss based on the relative change between the two share prices. If, say Pick n Pay fell by 50 per cent and Shoprite fell by 40 per cent, they would still profit by roughly 10 per cent. Does an emphasis on capital protection reduce upside in bull markets? Other than some particularly aggressive hedge fund strategies, we would expect most hedge funds to lag a strong bull market. However, due to the principle of compounding, hedge funds that have successfully protected capital in downturns have generally outperformed the market over most long-term investment horizons and with a lower level of volatility.

Should we access a broad range of hedge fund strategies? Just as an investor seeks diversification among traditional managers, a hedge fund investor should also seek diversification between hedge fund managers and hedge fund strategies. It is possible to build a robust blend using a portfolio of four or five hedge funds with complementary strategies. The hedge fund universe in South Africa, while far smaller than the traditional asset management industry, provides investors with a reasonable choice of managers and strategies. What about absolute return funds? Absolute return funds aim to preserve capital and achieve returns above inflation on a consistent basis. However, they are extremely unlikely to earn sufficient returns in poor market conditions (as witnessed in the 2008 crash when most failed to earn positive returns, let alone achieve returns close to inflation). In fact, 15 out of the 20 absolute return funds seeking to beat headline inflation in the Alexander Forbes Actuaries and Consultants survey of absolute return managers of February 2009 had negative 12-month returns and only one narrowly beat inflation in that period. What’s more, all of this is before fees have been deducted. Can capital guaranteed products fulfil the same role? Structured capital guaranteed products may offer an investor guarantees but this comes at a cost of locked-in capital and forgoing the dividend portion of an equity index investment, for example. It depends on your goals – while you may not lose capital in the short term (other than possibly an insurance premium you may have paid), you will be hard-pressed to earn positive returns in down markets, let alone close to inflation, with most such products.

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ALTERNATIVE INVESTMENTS

Platinum and gas A tale of two commodities

“We believe the stock is trading at a discount to fair value and offers the potential for good returns over the medium to long term.”

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ommodities usually move up when stocks move down, so given the current volatile and unpredictable state of the markets, the question is whether it is time to take an appraising look at this sector. Although platinum stocks are currently out of favour due to the industry’s current high operating costs, the platinum price is likely to move up with costs because of the high concentration of South African producers, said Paul Whitburn, senior analyst at RE:CM. “We like the concentration of the industry, with three companies – Lonmin, Impala Platinum and Anglo Platinum – accounting for around 64 per cent of total world platinum production. These are high quality companies that have grown returns and dividends faster than the market. ”Platinum shares have also generated great returns for shareholders since mining the metal on a large scale commenced almost 40 years ago,” he said. However, Neels van Schaik, portfolio manager at PSG Asset Management, believes that the platinum market can be adequately filled at current price levels, which is in line with the long-term marginal cost of production. “Barring any significant increase from exchange traded fund demand, we believe the platinum price is not significantly undervalued at current levels,” said Van Schaik. He is more in favour of greater

long-term opportunities in natural gas as he believes that will play a vital role in US energy supply and expects demand to increase, particularly as it is a cleaner energy source. “The US Natural Gas price (Henry Hub) is currently trading at unsustainably low levels due to short term over-supply, leaving a number of shale gas plays unprofitable.” He added that a number of exploration companies have continued to drill to maintain their leases and the high operating costs and low income being generated could result in their foreclosure. “This should accelerate consolidation in the industry and supply of dry gas should decelerate and drive-up prices.” His views on the demise of smaller producers are shared with Whitburn who said it is unlikely that the supply side will keep up with demand in coming years. “Ten years ago, platinum producers had a target to double output, but the reality is that they are below the peak produced in 2006. Because junior mines have failed to produce significant ounces, we may see smaller producers close down, with only the low-cost producers supplying the market.” And as environmental standards pick up globally, demand for platinum should rise. “Sixty per cent of all platinum group metals mined go into the automotive market, which is using cleaner resources in vehicle production. There has also been an increased preference for platinum jewellery with 28 per cent of all platinum produced now used in the

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jewellery industry and this has been growing at 5.5 per cent a year over the last five years. “We believe the stock is trading at a discount to fair value and offers the potential for good returns over the medium to long term.” Van Schaik shares this perspective for the natural producers saying that an increase in growth will eventually follow supply. “Natural gas prices are unlikely to go back to their 2008 peak and will remain a cheaper and more environmentally-friendly alternative to other fossil fuels. Around 30 per cent of the US coal-fired electricity fleet is expected to be retired over the next decade, and Van Schaik believes this will create significant scope for future gas usage in electricity generation. “Canada is also looking to phase out around 50 coal-fired power stations over the next 15 years.” He said that the main players are employing more responsible roles towards environmental concerns. “We expect increased regulation over the next few years and this will influence the shift towards using environmentallyfriendly producers.” “The increase in natural gas supply from the shale gas developments over the last few years can make the US much more self-sufficient from an energy supply point of view, which means being less reliant on the Middle-East for its energy supply. Significant export opportunities exist for LNG as a result,” he concluded.

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RA feature

Your RA has more advantages than you think Cilma Heyns | Business development manager Glacier by Sanlam

Retirement Annuities (RA) offer more than just the opportunity to make additional provision for retirement; they also offer the potential for tax and estate duty savings. The good news is that there is still time before the commencement of the new tax year to make additional payments into an RA in order to reap the benefits this year, or to begin investing in an RA if you haven’t already done so. People are living longer and retiring earlier and therefore preserving and also growing capital well into retirement is a requirement in order to maintain your standard of living. Even if you are contributing the maximum amount allowed to your company pension fund, you will in all likelihood still experience a shortfall. To retire with 75 per cent of your final salary you will need to make additional savings. If you do not need immediate access to your savings, i.e. you have an emergency fund in place, then an RA is an ideal vehicle. With an RA, you will not be able to access the funds before age 55 and the funds may also be protected from creditors. RAs offer transparency as well as a wide underlying fund choice. There are currently over 900 collective investment funds available to South African investors. More adventurous

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investors with a longer time horizon may even include a share portfolio as part of their underlying investment within the RA.

funding income is that portion of your income that is not taken into account when calculating your retirement fund contributions.

Younger investors who want to invest as aggressively as possible may view the Regulation 28 legislation as a hindrance. This stipulates that no more than 75 per cent of the RA investment may be in equities and no more than 25 per cent in funds with foreign exposure. Your equity exposure can be maximised by combining pure equity funds with property equity funds. This is an optimal way of structuring the underlying funds while allowing for maximum growth.

Because retirement contributions are done before tax, investors can afford to invest more funds before tax than after. For example, if you have R1 000 a month available to invest after tax and a 30 per cent marginal tax rate, you would be able to invest a larger amount (R1 428,57) in an RA before tax, than you’d be able to invest in a savings plan after tax – without altering your net salary. Investing a larger amount each month, coupled with compound interest over time, will see RA investors reap rewards in years to come. In addition, returns within the RA’s underlying funds are tax free. On retirement, when the RA is transferred to an annuity (either guaranteed or investmentlinked), tax will be paid on the lump sum portion taken as cash (based on a retirement sliding

New generation RAs also permit investors to make ad hoc contributions, and even to stop or reduce premiums at any time, with no penalties. RA investors can enjoy tax relief on their contributions of up to 15 per cent of the non-retirement funding income. Non-retirement

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scale) as well as on the monthly income drawn, but not on the investment returns. RAs can also provide opportunities for clever and efficient estate planning. All funds within the RA fall outside of the investor’s personal estate for estate duty purposes. The investor therefore does not pay estate duty (currently 20 per cent) on the value of the RA. There is also a saving in executor’s fees. Whether an RA is your primary retirement savings vehicle, or a supplement to your employer’s pension fund, it remains an excellent way to grow your money to ensure a successful retirement.


Retirement Investing

RETIREMENT INVESTORS WARNED OF TOUGH TIMES AHEAD

Windall Bekker | Head of investment consulting at OMAC Actuaries & Consultants

With volatile economic conditions expected to prevail for the next 12 to 24 months, it is crucial that trustees and members of retirement funds proactively manage their investment risk by making use of the various protection mechanisms that are available. This is the recent outlook released by Windall Bekker, head of investment consulting at OMAC Actuaries and Consultants. He said that South African investors should prepare themselves for the knock-on effects of a potential recession in Europe and possibly even a global recession in the next 12 months. “In a recent Bloomberg Poll, 75 per cent of investors expected a recession in Europe with 43 per cent expecting a global recession in the next 12 months. Our expectations are broadly in line with this poll result, however, we do not expect a full-blown recession to occur in South Africa,” he said. Bekker also predicts that a lack of fiscal discipline, as a result of political pressure, with a corresponding increase in inflation, will continue in the near term. Furthermore, increased tax rates and austerity packages, especially in the US and Eurozone with a knock-on effect on demand for resources, will impact the domestic economy negatively. “Locally, consumers can expect an increase in taxation in the form of toll roads, higher utility charges and so on to continue, with the effective tax burden on the employed rising over time.” Difficult market conditions leading to high unemployment and increased taxes will significantly reduce consumer demand for goods and services during this period.

“There will also be increasing pressure on the government to be seen to be rectifying the historical imbalances, with the nationalisation debate and unilateral land reforms affecting local and international investors’ concerns over long-term property rights,’ added Bekker. In light of this outlook, members’ income replacement ratios at retirement could fall, should their retirement funds be unable to meet their investment objectives. “We believe that there is a potential for stagflation (low growth combined with inflation) in the local economy, which will adversely affect replacement ratios. This will be especially relevant to the growth retirement portfolios which target high investment objectives, for example, inflation + seven per cent p.a. target,” he explained. Bekker advised investors to ensure that they protect against the downside while participating in the upside. Although the short- to medium-term economic outlook is negative, trustees can consider a number of strategies to proactively manage their retirement fund risk during this period of uncertainty. He recommended asset allocation, derivative overlay strategies and smoothing tools as some of the protection mechanisms trustees should consider.

it usually takes the fund manager time to implement the strategy and trading costs and imperfect market timing can negatively affect the fund’s performance,” said Bekker. A derivative overlay strategy is when the fund manager uses derivative instruments to protect against losses during negative periods. “The advantage is that the derivative structures can be implemented relatively quickly, but the challenge is that the derivative structures can be expensive during times of market volatility and are more complex to manage.” By using smoothing and guarantees, the fund manager reduces volatility risk from the fund’s returns and uses guarantees to protect the fund from capital losses. According to Bekker, the advantage of this strategy is that the fund manager can provide stable returns at very low risk with any guarantees backed by the balance sheet of a large insurance company. This allows the fund manager to target a level of growth (after costs) that could be more challenging for other strategies that are forced to move out of equities to reduce risk. However, the disadvantage is that the smoothing strategies and guarantees can be complex to understand and an additional layer of costs is introduced.

Downside protection using active asset allocation means that the fund manager takes an overweight position in asset classes such as cash and money market that protect against losses during negative periods. Conversely, the manager takes an underweight position in asset classes that experience losses during negative periods, such as equities. “The challenge is that

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economic commentary

35% chance of SA recession Annabel Bishop

As a small, open economy, South Africa’s economic performance is heavily influenced by global conditions and the worsening of the sovereign debt crisis has taken its toll. While Asia has replaced Europe as SA’s chief export market, this is due to the shrinkage of the European economy and not the outperformance of Asia on its own – SA is exporting less in real terms.

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In fact, the lack of resolution to the Eurozone crisis is also the biggest risk to SA’s economic outlook, rising inflation in the country on the back of loose monetary and fiscal policy is occurring as growth slows. Stagflation is not the reality yet, but Moody’s has already put SA (and hence its largest banks) on rating watch due to fiscal slippage following upward revision of its fiscal deficits and the extension to the period over which fiscal consolidation occurs. A further loosening of monetary policy will likely be met by a downgrade from all the rating agencies, not just Moody’s, and hence some upward pressure on interest rates. Fiscal slippage reduces the impact of monetary loosening.

The biggest risk currently is that a Eurozone recession causes SA’s economy to stall, or worse contract. We ascribe a 35 per cent chance of a recession in SA next year; in other words we believe there is a greater chance of no recession in SA than one occurring next year. However, growth could slow and we are in the process of revising down our current growth forecast of 3.5 per cent for GDP in 2012, to just below 3.0 per cent on the worsening outlook – we do not see a recession in SA yet as the central case. In the third quarter, 193 000 jobs were created in SA (after Q2.11’s 150 000) but the number of impairments inched up to 46.7 per cent of credit active consumers, and capacity utilisation levels are still low implying little impetus for fixed investment. We still expect a growth outcome of 3.2 per cent year on year for 2011 but are becoming less optimistic about the 2012 outcome.

Financial system remains resilient SA’s financial system remains well capitalised and with no liquidity problems and a low level of gearing – the Reserve Bank’s high level of financial market supervision and protection provided by the few exchange controls still in place also meant SA did not experience the same issues as the global financial community (it never had a

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banking crisis and government borrowing was accordingly unaffected). The Reserve Bank’s latest financial stability review shows that the banking and insurance sectors maintained high-quality capital and liquidity buffers well above the minimum macro-prudential requirements. The Reserve Bank recently revised its inflation forecast to a more protracted breaching of the inflation target, with CPI inflation peaking at 6.3 per cent in Q1.12 and returning to target only by the end of 2012. Normally this would have increased pressure for monetary tightening, but the weakening economic growth outlook, both domestically and globally, on the escalation of the sovereign debt crisis means there is no chance the MPC will raise interest rates. We continue to expect interest rates will remain unchanged this year and for most of next. Should growth deteriorate substantially, a global downturn will translate into a similar drop in economic activity locally. This is the risk for 2012, and as previously stated we ascribe a probability of 40 per cent to the occurrence of a domestic recession. Should this occur, interest rates are likely to be cut, despite climbing inflation, as has already been communicated by the SA Reserve Bank.


ASSET ALLOCATION

How to improve your asset allocation results

Andrew Dittberner | Senior investment manager of Cannon Asset Managers

A

sset allocation is known to be

to give a more accurate representation

approach indicated that there should be a zero

one of the most important,

of the attractiveness of the market and

per cent weighting in equities, the subsequent

yet hardest to perfect, aspects

companies alike.

12-month average and median real FTSE-JSE All Share Index returns were negative. At the

of portfolio management. In By removing both emotion and forecasting

other extreme, when the model pointed to a

can lead to permanent capital destruction.

from the decision-making process, you can

100 per cent equity weighting, the following

Most asset allocation fails as it relies heavily on

substantially improve tactical asset allocation

year’s average and median real returns were in

forecasting which, by definition, is difficult.

decisions. For example, the Cannon Flexible

excess of 20 per cent.

addition, poor asset allocation

Fund is unique in that it consists of only two A more sensible approach to asset allocation

asset classes – equities and cash – and the

In other words, by applying the simple

is valuation based – by determining if current

exposure to the asset classes is made between

rules of the CAPE ratio framework, you can

asset prices are expensive or attractive. The

100 per cent deep value equities and 100

significantly enhance portfolio returns through

pitfall here is the valuation methodology and,

per cent cash, moving in increments of 25 per

tactical asset allocation.

for example, what aspect of the asset is being

cent. In other words, the portfolio will hold 100

valued. Using a market valuation tool that

per cent, 75 per cent, 50 per cent, 25 per cent

Another way of looking at this is to explore

incorporates the seven-year earnings of both

or zero per cent in equities, with the balance

the extent to which equities showed a negative

the market and the underlying companies,

in cash. The asset allocation is informed by

or a positive return over one year, for each

a cyclically-adjusted price earnings (CAPE)

prevailing market CAPE ratios and results in a

of the equity allocations. When equities are

ratio, assists in making better asset allocation

portfolio that is a true asset allocation fund.

expensive and the allocation to equities in the model is zero per cent, there is a better

decisions. Using the CAPE ratio essentially removes the noise or excessive volatility

The results are impressive. From 1986

chance of achieving a negative real return over

associated with the one-year earnings figures,

to 2011, when Cannon Asset Managers’

the following year. By contrast, when they are attractive, as indicated by the CAPE ratio, and the allocation to equities is 100 per cent, there is a greater than 80 per cent chance the return over one year will be positive in real terms. By avoiding the equity market when it is overpriced, the subsequent poor returns can be avoided. Conversely, by raising exposure to equities when the market is undervalued, an investor can benefit from the greater upside potential.

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$

RESPONSIBLE INVESTING

Climate change research highlights opportunities and risks for SA business

Investec Asset Management recently unveiled new research to assess the impact of climate change on shareholder value in South Africa, providing analysis of how this new phenomenon will impact on our lifestyle and on the way we invest for the future. Malcolm Gray | Portfolio manager for responsible investments at Investec Asset Management

“Not only is climate change resulting in policy and regulatory changes, but the marketplace is similarly changing, with stakeholders across all sectors shifting their expectations of business on this issue: investor groups across the world are demanding greater transparency on ESG performance, customers are beginning to include climate change factors in their purchasing activities, and many civil society bodies are engaging governments and businesses on climate change actions,” said Malcolm Gray, portfolio manager for responsible investments at Investec Asset Management. He said that changes in the climate, and the efforts of society to curb these changes, will have a growing effect on equity markets, both in terms of the overall perception of risk, as well as in the evolving character of the investment opportunities that will ensue. “Understanding the investment case for climate change is fundamental to the fiduciary responsibility that we as investors have towards our clients.” The research highlights how diverse the impact of climate change will be across sectors and clarifies both the risks it poses and the opportunities for those companies that do factor climate change into their longterm decision-making. Platinum: Negative impacts for the sector include potential supply disruptions due to water scarcity and extreme weather (high temperatures). From a revenue perspective, however, it is potentially positive given greater demand for the precious metal both in the manufacturing of catalytic converters (increasing regulation to limit vehicular

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emissions), and in an ever more carbonconstrained world, for its utilisation in fuel cell technology. The winners will be those platinum producers that make the necessary long-term investments needed to prepare for the impact of climate change, both in terms of investment in greater energy efficiency, refining technology and production capacity as well as efforts to mitigate other risks such as extreme weather and potential water scarcity impacts, given that platinum producers operate in the water scarce north of South Africa.

“Changes in the climate, and the efforts of society to curb these changes, will have a growing effect on equity markets, both in terms of the overall perception of risk, as well as in the evolving character of the investment opportunities that will ensue.” Telecoms: While extreme weather can affect the reliability of networks, climate change on balance appears to be net positive for telecoms, with more opportunity than risk. Climate change is likely to drive behavioural change which will see people travelling less and relying increasingly on telecommunications in their personal and business capacity, as well

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as machine to machine (M2M) which will boost income streams over the long term. In terms of technology, the sector is increasingly pushing the boundaries of efficiency and is well suited to renewable energy such as wind and solar power. Food retailers: Cost structures are likely to increase at a store level and in their supply chains, which are often long and inefficient. There is opportunity for retailers that invest in more energy-efficient stores and manage their supply chains more efficiently. With rising food input costs likely to be inflationary, there is also opportunity for those retailers who manage their costs bases to capture the margin on inflationary increases. Construction: Climate change is likely to drive transitionary investments (i.e. investments that transition us to a lower-carbon economy), which could generate a lot of new business for the broader construction sector over the long term and drive a new era of innovation and development. However, it is also likely to drive massive differentiation in the sector, as those companies that have access to skills and technology will be better positioned to spearhead specialist solutions. Risks include project delays and rising commodity prices due to climate variability, so construction companies will need to ensure they are pricing appropriately for these events. On balance, this is positive for those companies that can harness the specialist skills required and have effective risk management methodologies to plan appropriately for climate changeinduced variables. (For the full report, please see www.investecassetmanagement.com/stewardship/).


Industry Associations

What the policy change

on inward-listings means for investors Leon Campher | CEO of ASISA

O

nce implemented, government’s policy change on inward-listed shares will open up the entire JSE as an investible universe for institutional investors without restrictions, according to Leon Campher, CEO of ASISA. At present, companies with a primary listing on a foreign stock exchange and a secondary listing on the JSE are deemed foreign shares. The exceptions are the so-called London Five: Anglo American, BHP Billiton, SABMiller, Old Mutual and Investec. They are South African companies with a primary listing on the London Stock Exchange and the secondary listing on the JSE. “The policy change means that in future a share that can be traded and settled in Rand will be classified as a domestic asset and institutional investors will not have to use their prudential foreign allowances to invest in shares previously deemed foreign because they have their primary listing on another stock exchange,” said Campher. Institutional investors will therefore be able to use their offshore allowances for true foreign diversification into stocks such as Apple and Microsoft. “Currently, if retirement funds, life companies and unit trust funds want exposure to stocks like British American Tobacco (BAT) and Aquarius Platinum, they have to use their prudential foreign allowance. The irony is that a company like Aquarius has 80 per cent of its operations in South Africa. Yet, until now, it has been deemed a foreign share.” Campher added that once the reclassification has been implemented, institutional investors can include these stocks in their domestic portion

of the portfolio. The change in policy will now also enable the JSE to include these counters in its indices in one way or another. This was previously not possible, because local investors could not buy these shares without restriction.

“Currently, if retirement funds, life companies and unit trust funds want exposure to stocks like British American Tobacco (BAT) and Aquarius Platinum, they have to use their prudential foreign allowance.”

listing on another stock exchange to list on the JSE. “Why list here if your shares cannot be bought locally. If the inward-listed policy had remained, we would probably have seen the local market eventually decimated. If the affected companies had delisted their shares, the JSE would have lost some 40 per cent of its market cap.” The change in policy also removes the risk that the London Five would eventually be forced to reclassify as foreign assets. “The policy change on inward-listings has come about as a result of continued engagement in good faith by all stakeholders. It is my view that this is one of the biggest achievements this year and I would like to thank National Treasury, the Financial Services Board, the South African Reserve Bank and the JSE for their consistent professional approach. We will now work together on implementing the new inward-listings policy,” Campher concluded

Institutional investors such as retirement funds, life companies and unit trust funds are restricted by prudential limits when investing in foreign assets. In terms of these limits, retirement funds can invest 25 per cent of total assets in foreign assets, Collective investment scheme (CIS) companies can invest 35 per cent of retail assets in foreign assets, and life companies can invest 35 per cent of retail market linked assets in foreign assets. The policy change does not impact on individual investors directly, since they have been exempt from the prudential limits that apply to institutional investors. Campher said the policy change is also likely to encourage more foreign companies to list on the JSE, providing investors with a much wider universe of shares. Until now, there has been little incentive for companies with a primary

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Maya Fisher-French

What is the role of the financial adviser? By Maya Fisher-French

At the recent Horizons: Challenging the Status Quo event held for financial intermediaries, the question arose regarding the role of a financial adviser. Sunel Veldtman, financial adviser and author of Manage your Money, Live your Dream, made the point that forecasting the markets is not possible and tactical asset allocation is the responsibility of the asset manager. This begs the question: what advice is given by a financial adviser.

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Coaching The role of the adviser is to create a lifestyle plan for their client. As a member of the audience commented, his clients are not interested in the Rand value of their retirement; they want to know what lifestyle it will provide them. Money is a story about life which is why an adviser’s role is in many ways that of a life coach. An adviser needs to spend time understanding the client’s needs and aspirations and to create a strategy to meet those goals. In these difficult economic times, that role is even more important as the adviser becomes the voice of reason which prevents the client from getting caught up in the headlines of the day and makes them refocus on the bigger picture.

Educating Clients also have different responses to loss and this is a fine line for advisers. An adviser needs to take cognisance of the client’s tolerance for risk but also must explain that the longterm risk of inflation is often greater than the short-term volatility of the market. While StatsSA may argue that the inflation rate is six per cent, the reality for most clients is that their experienced inflation is closer to 10 per cent, and they have little chance of achieving their objectives if they do not invest in growth assets that can produce returns above inflation. So the role of the adviser is also to educate.

Encouraging Panelist Anne CabetAlletzhauser, head of Alexander Forbes Research Institute, raised the issue of living annuities and whether clients should be allowed to select these market-related annuities without proper financial advice.

“Money is a story about life which is why an adviser’s role is in many ways that of a life coach.”

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Gavin Came, chairman of the financial planning committee for the FIA, said that the reality was that most people had no option as they had not saved sufficiently for retirement. As a result, the income from traditional life annuities would not meet their basic needs so they opted for living annuities with unsustainable draw downs, having to rely on their families to support them in their later years. Clearly convincing your client to save sufficiently and to live within their means is another role of the adviser.

Explaining One of the toughest questions asked of advisers by their clients is what they should be doing with their money given the state of the global markets. With such extreme volatility there have been articles arguing that ‘this time is different’ since we're in one of the biggest financial crises of all times and this requires a different asset allocation strategy. Reuters recently ran an article in which US advisers were interviewed and they argued that the buy and hold strategy that worked for the baby boomers won't work for the generations of investors to come. This means their clients have to move their money around more aggressively. “We're 100 per cent in cash right now and this is fantastic for us,” said one adviser. “When things really start breaking down in the next few months, we'll probably start shorting the market to make

money on the way down. Once it starts to bottom out and everyone in the country pulls out, we'll start buying stocks and ride it back up.” It is this kind of statement which advisers have to put up with when their clients ask them why they haven’t read the markets and moved cash around. As most sensible advisers know, while this sounds like a great plan, few people get it right and no-one gets it right consistently. Over the years there has been a lot of academic research pointing to the difficulty, if not impossibility, of profitably timing the market. Timing is everything in a tactical strategy, so it amplifies the risks of active management. In other words, the more flexibility your manager has, the more room for error. Also, active trading increases fees and taxes. Panelist Piet Viljoen, CEO of RE:CM, always a straight talker, reminded the audience that investing is never different. If you overpay for an asset you will lose money, but if you pay the right price irrespective of short-term volatility you will make money. An adviser’s role is to explain to clients that risk is not volatility but the permanent loss of capital and this can be mitigated by the price you pay for the asset, not by trying to time the market. “If you pay a low price relative to the value that you get, you can deal with all kinds of uncertainties,” said Viljoen.

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CHRIS HART

Greed, Need, Indeed Chris Hart | Chief strategist | Investment Solutions

W

hen the year comes to a close, it is a time of reflection and also hope for the new year. The next year mostly offers a fresh start. But the fortunes of 2012 will be inextricably linked to the burdens of 2011. The year began with a great deal of promise as the 2010 economic recovery was expected to gain momentum. January 2011 was probably the high point. The global economy lost momentum and the earthquake/tsunami that hit Japan also had a negative economic impact. In the second quarter, the debt market mood shifted against Greece when it became apparent the government was not meeting its bailout targets and outright default was regarded as the most likely outcome. Markets soured across the Eurozone, with Italian and Spanish debt starting to trade at distressed levels. The European Central Bank (ECB) moved to stabilise both the Spanish and Italian debt markets through the purchase of the respective government bonds. The monetisation of Italian and Spanish government debt by the ECB has been controversial, as this is highly inflationary and opposed by the Germans. The European debt problems look set to continue dominating the economic and financial market landscape in 2012. There do not appear to be any solutions but rather strategies just to postpone the day of reckoning. Even the latest Greek bailout and managed default with its 50 per cent haircut still has an endgame of tears. However, for now Greece is probably already discounted in financial markets. 2012 will see the focus shift to Italy and Spain, as the debt position deteriorates. The US, UK and France will

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also not escape scrutiny from increasingly unsustainable debt loads and budget deficits.

“The European debt problems look set to continue dominating the economic and financial market landscape in 2012.� The global economy will struggle for growth in 2012. Central banks are either considering or are starting to implement another round of stimulus measures. The ECB under the new stewardship of Draghi has begun to reverse earlier rate hikes; the US FED is considering another round of quantitative easing (QE) while the Bank of England has already extended its QE programme. The Swiss National Bank has also entered the fray through pegging the Franc to the Euro. The central banks of emerging markets such as Brazil and China, which have been tightening in 2010 and 2011, are now in the process of reversing course. The new year will be ushered in against a backdrop of generalised easing of monetary policy by central banks. Sluggish and stagnant economic growth has been the main catalyst for central banks opening up the monetary taps. The lack of traction in economic recovery following the 2008 global financial crisis has created an unemployment crisis and a widening wealth gap in its wake. This is politically and socially highly problematic; hence, the focus of policy efforts on economic growth. However, global inflation has been uncomfortably high. There is an increasing sense that official inflation figures are

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understating the levels of inflation. In the US, for example, the official inflation rate of 3.9 per cent for September 2011 would stand at over 10 per cent if various statistical overlays introduced relatively recently were removed. Global food inflation has risen substantially and has caused political problems in countries as diverse as China, India and also North Africa. This then poses the 2012 policy dilemma. The focus on economic growth means pursuing expansionary monetary policies, which are inflationary at a time where inflation is elevated and still rising. This will stretch further in 2012. The race to debase will most likely intensify as countries look to weak currency solutions in order to stimulate growth through exports. The year will be the test of the resilience of Chinese growth. Property there is probably in a bubble and it is possible that this will start to unwind in 2012 with a negative implication for economic growth. For South Africa, the focus on unemployment and growth will probably see interest rates unchanged even if inflation spikes higher due to the recent weakness in the Rand. The unfolding debt crisis in the developed world will generate volatility in the local financial markets. However, investment flows will ultimately be driven by yield, growth and solvency where South Africa is well placed to benefit.


BAROMETER

South Africa scoops top credit access rating A global survey on the ease of doing business awarded South Africa the top rating for access to credit for small- and medium-sized enterprises. The survey included 183 countries and was conducted by the World Bank and its private lending arm, the International Finance Corporation.

US economy grows Boosted by strong consumer spending, the US economy grew at a rate of 2.5 per cent in its third quarter. This latest growth rate was almost double that of the second quarter and was above economists’ prediction of 2.3 per cent. Local investors set to benefit from reclassification of overseas -based companies According to the Association for Savings and Investment SA (ASISA), the decision to classify the shares of foreign-based companies listed on the JSE as domestic assets is positive news for local investors. The decision is predicted to encourage more listings on the stock exchange, increase the number of shares in which retirement fund and unit trust funds can invest, as well as provide these funds the opportunity to increase offshore market exposure.

sideways

HOT

Will additional financial help allow Greece to eventually pay its bills? According to the terms of the EU’s latest bailout package, Athens will receive additional financial help from the International Monetary Fund and the European Union that will allow the bills to be paid until 2014. Economists argue that Greece’s debts will not be sustainable even with this latest bailout package.

NOT

JSE director ousted after breaking the rules The JSE announced that it has sacked the director of equity derivatives trading, Allan Thomson, for using his own account to implement a blocking order on irregular trading. Thomson admitted taking the law into his own hands but clarified that he was not fired for insider trading. SA credit rating cut by Moody’s South Africa’s A3 credit rating outlook was cut by Moody’s to negative from stable after the ratings agency warned that political pressure could lead to a further deterioration in public finances. However, Melanie Brown, Managing Director of Global Credit Ratings, said she failed to understand the decision, citing that the move was drastic and premature. SA banking confidence falls According to a survey by Ernst & Young, confidence among SA’s retail and investment banks fell in the third quarter due to concern that uncertain global growth could worsen already delicate consumer and corporate balance sheets. Retail banking confidence fell from 50 points in the second quarter of 2011 to 38 in the third quarter, while that of investment banking fell from 67 to 44 respectively.

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REGULATORY DEVELOPMENTS

The impact of proposed tax changes

on the employee benefits industry

P

roposed tax changes that will affect employee benefits are expected to take effect only in 2013; however, it is vital for all those involved in the industry – advisers, employers

and employees – to make themselves aware of these looming changes. According to Andy Clark, head of benefit consulting at Liberty Corporate Consultants and Actuaries, said that while at this stage there is no draft bill, there is a clear indication from National Treasury of the changes that are set to take place. He said the State will work towards giving the employee less flexibility around managing their savings in provident funds at retirement. “Employees will most likely be forced to take out an annuity with at least two-thirds of the fund value, with the one-third balance being available for cash. By structuring the funds at retirement in this way, the employee is provided with some continued income during their retirement years. The ability to encash the full savings earned to date will still remain, which means no need to panic with rights attached to current benefits.”

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South Africans do not tend to follow a strong

new legislation may cover this matter and may

“The Code of Conduct aims to guide FSPs

culture of saving. “What often happens is

also allow consumers partial access to their

and their representatives on how to engage

people receive a lump sum payout and tend to

retirement funds should they satisfy certain

with clients in a professional manner. The

spend the total amount, leaving them reliant

‘emergency’ criteria, for example if they were

code stipulates that all members of the

on the State during their retirement years.

to be compulsorily retrenched. “There’s little

FIA will, at all times, interact with honesty,

Government wants to encourage responsible

point in keeping funds inaccessible if it’s

integrity, due skill, in the interests of the client

money management among the population,

required.”

and, above all, to enhance the profile of the financial services industry.”

therefore easing the burden on the State.” FIA LAUNCHES NEW CODE OF CONDUCT As the law currently stands, contributions by

TO PROTECT CONSUMERS

The code also contains an eight-step process

employers to pension or provident funds are

South Africans who use the services of an

for all members of the FIA to follow:

still tax deductible up to 10 per cent of his

intermediary when purchasing financial

employees’ retirement funding income (in

services products now have added protection

practice up to 20 per cent is allowed without

with the launch of the Financial Intermediaries

question) in addition to 7.5 per cent deductible

Association of Southern Africa’s (FIA) new

2. Gather client information.

as member contributions to pension funds.

Code of Conduct, which ensures that all of

3. Enter into a service agreement with the

its members comply with both current and Clark said a further 15 per cent of non-

forthcoming legislation.

funding income distinction. As announced by the Minister of Finance in his budget speech this year, the proposal is that tax deductibility be taken away from employers and will shift to employees, at around 22.5 per cent of taxable income, with a ceiling of R200 000 a year.

client. 4. Conduct an analysis and prepare a client 5. Present the proposal to the client.

paid to a retirement annuity. There is a need provident fund and remove the retirement

introduction to clients.

proposal.

retirement funding income is deductible if to equalise the treatment of pension and

1. A comprehensive and professional

“By structuring the funds at retirement in this way, the employee is provided with some continued income during their retirement years.”

6. Enter into a financial service agreement with the client. 7. Implement the agreement. 8. Render continuous advice and/or intermediary services to the client. The new Code of Conduct replaces the FIA’s existing Code of Conduct – which has now been renamed the Code of Ethics and remains applicable to all FIA members. This

“Where clarity is also required is where costs

previous code was introduced as part of

like administration fees and insured death/ disability benefits are implied. It is uncertain

According to Justus van Pletzen, CEO at

a collective effort to raise standards in the

whether these will shift to the employee over

the FIA, the new Code of Conduct is fully

industry and protect consumers by promoting

and above the 22.5 per cent rate. This is

aligned with the Financial Advisory and

the improvement and standard of financial

obviously a concern in terms of how defined

Intermediary Services Act (FAIS), which has

products, financial advice and intermediary

benefit funds will be treated where the

been in place since 2004 and is also aimed

services.

employer pays the balance of costs.”

at ensuring that intermediaries are compliant

Concerns over whether it will still be attractive

with future legislation such as Treating

“With the combination of both the FIA’s Code

Customers Fairly (TCF).

of Ethics and the new Code of Conduct, we can provide clients with the peace of mind that

for employers to arrange for a group scheme to be implemented are unfounded.

“The Financial Services Board (FSB) has

they are dealing with competent and reputable

“Operating costs will almost certainly be less

introduced a number of pieces of legislation in

financial advisers who have their best interests

than individual retirement initiatives, thereby

recent years, aimed at effectively regulating the

at heart,” said Van Pletzen.

possibly resulting in a greater proportion of the

financial services and intermediary industries

employees’ contributions being allocated to

in order to better protect the interests of

retirement funding.”

consumers. We fully support any initiative that has consumer protection at its heart, as do our

The onerous burden of the administration

members. We also recognise that compliance

process is also then taken away from the

with multiple pieces of legislation can be a

individual if an employer manages their

complex and daunting process. As a result,

scheme. “The employer’s role remains key

our new Code of Conduct aims to ensure

even though the model is shifting towards

that all FIA members are able to align their

the employee. The shift is essentially for tax

business fully with the new legislation as easily

efficiency purposes,” said Clark. “So it’s

as possible.”

important that one continues with the group scheme for all the above-mentioned reasons.”

Van Pletzen said the FIA’s members, who comprise nearly 3 000 financial

Clark noted that while not discussed in the

services providers (FSP) employing 13 000

Minister of Finance’s speech last year, the

representatives, already comply with relevant

National Treasury’s papers on social security

legislation but that the launch of the new code

and retirement reform do discuss the possibility

now puts this into a format that is easier for

of the compulsory preservation of benefits. The

both intermediaries and clients to understand.

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BETTER BUSINESS

The role of technology in the financial planning process Last month we discussed the key business processes that the typical financial advisory practice performs and the role of technology in supporting these. We looked specifically at the role of CRM solutions in supporting the new business and relationship management processes. This month, we look at the role of technology in supporting the financial planning and investment management processes.

Increase productivity, boost revenue and promote effective client service

The benefits of using financial planning software are extensive. Importantly, it can help you work more efficiently – saving you time by doing complex calculations and generating reports, which can have a huge impact on the number of clients you can service and therefore the revenue you can generate. Meanwhile, it can be extremely useful in developing planning scenarios and helping you assess the merits and drawbacks of the various planning strategies you may recommend to your clients.

“You should also think about the processes you currently have in place and how they will be affected when you adopt financial planning software.”

In terms of FAIS, a financial adviser must be able to accurately assess a client’s risk profile, taking into consideration their financial and cash flow needs, and then matching these with appropriate products and investments, having undertaken the necessary research and due diligence procedures. Needless to say, there are various technology solutions available to address all these areas of the financial planning process, some of which are integrated into CRM packages. Choosing the right solution can be overwhelming, but there are some filters you can use to narrow down your list:

You should also think about the processes you currently have in place and how they will be affected when you adopt financial planning software. If you use portfolio management and CRM software, consider whether they have any financial planning elements and whether your chosen financial planning software will integrate with these before making your final decision.

2. Establish what type of reports would best suit your clients

Knowing your clients and understanding their needs will help you assess what you need your financial planning software to do. Do you have middleincome clients who require budgeting and money management reports, or are you more focused on the top-end of the market – clients who may benefit from software that provides in-depth analysis of estate and legacy issues? Consider, too, your format preferences. Will you give your clients hard copy documents or would they perhaps enjoy a portal through which they can access their financial plans online?

3. Your financial planning style will affect your decision

Keep your planning philosophy in mind when evaluating the various software options. Different packages use different methodologies, such as cash flow-based planning versus goal-based planning. Finally, remember that financial planning software will not replace the personally tailored advice you give to your clients; software can assist you in developing plans and, if used effectively, it can save you a lot of time. You can devote this time saved to understanding your clients’ individual goals and requirements, and providing them with enhanced service. Sources: Articles by Spenser Segal, Mitch Ratcliffe, Rebecca King

1. Consider your current processes and your business objectives

As always, the first step in deciding which software to purchase is to evaluate your business objectives and what you expect to gain from using financial planning software. This will help you determine what functionality is essential, and what is ‘nice to have’.

This page is sponsored by Allan Gray, an authorised financial services provider. Allan Gray believes in and depends on the merits of good and independent financial advice. Allan Gray also acknowledges the pressure that independent financial advisers face currently and therefore has launched Adviser Services as a support function to all Allan Gray contracted financial advisers; its goal being to facilitate effective financial advisers’ practices and protect the independence of the financial adviser in the South African market with ultimate benefit to their clients. Adviser Services short lists third party suppliers based on market research to provide support in identified areas that would support an IFA’s business operations (such as software, compliance, practice management, training and more). Adviser Services performs research and maintains the short list of selected vendors on an ongoing basis. All pre-negotiated terms, conditions and fee structures as well as vendor contact details are published on the Allan Gray secure website.

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etfSA.co.za

MONTHLY SOUTH AFRICAN ETF, ETN AND INDEX TRACKING PRODUCT PERFORMANCE SURVEY– NOVEMBER 2011 Mike Brown | Managing Director | etfSA.co.za

The November survey shows that despite the sluggish performance of the stock market and the economy over the past three years, a number of index-tracking ETF products have provided total returns well above the inflation rate and given investors a simple means to grow their real wealth. Over the past three years, with the local CPI averaging less than six per cent per annum, the returns provided by ETFs and most unit trusts tracking the JSE All Share or Top 40 indices have averaged between fifteen to seventeen per cent per annum. The top economic stagnation busters in the past three years have been the Satrix DIVI, Satrix INDI 25 and Satrix RAFI 40 ETFs, which provide purely passive management exposure to the largest and most liquid companies on the JSE. Clearly the large corporates in South Africa are managing difficult conditions well and tracker funds that invest in these companies offer a relatively safe, low cost and convenient means for retail investors to protect and growth their wealth. Over the short-term periods, the commoditybased ETFs and ETNs continue to provide market-beating performance, with the RMB Oil and Standard Bank Oil ETNs leading the way. These products offer a unique way to invest directly in crude oil, through Randdenominated JSE listed securities and are starting to grow in popularity.

Fund Name NewGold Satrix INDI 25 Prudential Property Enhanced

Best Performing Index Tracker Funds – 30 November 2011 (Total Return %)* 5 Years Type (per Fund Name Type annum) ETF 23,69% Satrix DIVI ETF ETF 14,54% Satrix INDI 25 ETF Unit Trust

14,33%

Satrix RAFI 40

ETF

2 Years (per annum) NewGold

ETF

26,03%

Satrix INDI 25

ETF

21,12%

NewFund eRafi INDI 25

ETF

18,66%

21,10%

1 Year

Standard Bank GoldLinker NewGold Standard Bank Silver Linker

ETN

44,63%

ETF

40,64%

ETN

37,44%

6 Months Standard Bank GoldLinker NewGold

3 Years (per annum) 24,27% 24,24%

3 Months

ETN

33,58%

RMB Oil

ETN

ETF

30,30%

ETN

28,12%

RMB Oil

ETN

14,57%

Standard Bank Oil DBX Tracker MSCI USA

ETF

17,54%

RMB Oil Standard Bank Oil Standard Bank Commodity Basket

ETN ETN

1 Month 14,26% 13,57%

ETN

10,35%

Source: Profile Media FundsData (30/11/2011)

31,48%

* Includes reinvestment of dividends.

The etfSA Performance Survey measures the total return (price changes plus reinvestment of dividends) for index tracking unit trusts and exchange traded funds (ETF) available to the retail public in South Africa. The performance table (attached) measures the one-month to five-year The Performance Survey the totalindex returnreturns (price changes plusreinvestment reinvestment of for totaletfSA return compared with measures the benchmark (including of dividends) dividends). index tracking unit trusts and exchange traded funds (ETF) available to the retail public in South Africa. The Note, as the FTSE/JSE calculates the index without taking into account any brokerage or other performance table (attached) measures the one-month to five-year total return compared with the benchmark transaction index-tracking will Note, typically underperform the index because of their index returns costs, (including reinvestment products of dividends). as the FTSE/JSE calculates the index without taking into account any brokerage or other transaction costs, index-tracking products will typically underperform the transaction and other running costs. . index because of their transaction and other running costs. .


INDUSTRY NEWS

Appointments

Selwyn Pillay

Terry Eichhoff

Selwyn Pillay has been appointed as portfolio manager at Blue Ink Investments, the Sanlam-owned manager of fund of hedge funds. Prior to joining Blue Ink Investments, Pillay served as a portfolio manager and before that head of quantitative research at Sanlam Multi Manager International.

STANLIB Asset Management has announced the appointment of Terry Eichhoff as head of intermediate services for its institutional business. Eichhoff will primarily focus on strategic client relationship management to grow assets under management for STANLIB’s institutional franchise.

Ian Ferguson

Yedwa Mjiako

Jo-Anne Bailey

Ian Ferguson recently joined Nedgroup Investments as the head of cash solutions to grow the area. Ferguson previously worked at the broader Standard Bank group and most recently with STANLIB as the international fund manager at SCMB Asset Management and was head of various STANLIB business units.

Yedwa Mjiako has been appointed managing director of Absa Mortgage Fund Managers at Absa Investments. She was previously the business unit’s chief operating officer. Mjiako has a BCom from Vista University and an MBA from the Thames Valley University of London.

Franklin Templeton Investments has announced the appointment of JoAnne Bailey as the director of Africa, Franklin Templeton Investments with immediate effect. Bailey is responsible for developing the firm’s retail and institutional businesses across the African continent.

Sanlam Private Investments expands with new fiduciary and tax team 46

In line with its broader business expansion plans, Sanlam Private Investments (SPI), the blue-chip private client investment management and stockbroking business within the Sanlam Group, has announced the addition of a specialist fiduciary and tax team. The new team, which will be headed by former RMB Private Bank’s head of fiduciary and tax, Marteen Michau and three of her team members, forms part of SPI’s aim

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to extend its client offering beyond pure stockbroking and portfolio management to provide a full spectrum of investment and wealth management solutions. “The appointment of Michau and her team is in line with our long-term strategic vision of growing SPI into a full-service wealth management business, providing an holistic suite of investment and financial solutions,” explained Daniël Kriel, CEO of SPI.


Grant Thornton Capital acquires First Light Spire Awards names Absa Capital as Best Fixed Income House

Grant Thornton Capital, an independent financial advisory businesses and subsidiary of Grant Thornton South Africa, has announced the total acquisition of First Light Administration Services (First Light), formerly a wholly-owned subsidiary of Sekunjalo Investments, a JSE-listed company. First Light will integrate into Grant Thornton Capital’s employee benefits division, specifically into the retirement fund administration business. “The acquisition of First Light sees Grant Thornton Capital being the administrators to over 80 000 member records,” said Gary Mockler, executive

For the third consecutive year Absa Capital, the corporate and investment banking division of Absa Bank Ltd, was named the Best Fixed Income House, at the annual Spire Awards. The Spire Awards is an annual event and recognises those individuals and teams who have used talent, intelligence and commitment to contribute to the fixed income market in South Africa. The Best Fixed Income House award recognises the overall leader in bonds, currency, interest rate derivatives, structuring, sales and research.

chairman of Grant Thornton Capital. “This accounts for over 300 participating employers with assets of some R6 billion under management and administration.” First Light, established 11 years ago, is a well-known retirement fund administrator providing services to listed and privately owned employers. Bruce Knight, managing director of First Light, said: “We’re thrilled to join Grant Thornton Capital because both of our businesses share a mutual focus in the delivery of reliable, transparent financial advisory client service as a differentiating approach.”

categories at the awards: Best Sales – Cash Bonds; Best Repo/Carry Team; Best Interest Rate Derivatives – Market Making; Best Interest Rate and Currency Derivatives – Sales; Best Bonds, Interest Rates and Currency Derivatives; and Best Research Team – Credit Research. “We are pleased to feature so prominently across several of the Spire Award categories, as it underscores the value of our client-centric approach, as well as our robust and market-leading fixed income and currency franchise,” said Stephen van Coller, CE of Absa Capital.

Absa Capital also claimed first place in six other

Absa Cape Epic Cycling Team 36ONE-SONGOSPECIALIZED defends title in 2012

36ONE Asset Management has announced its continued support of the winning team from the Absa Cape Epic 2011, 36ONE-SONGOSPECIALIZED, as the team members prepare to defend their title in 2012. The association forms part of a three-year sponsorship of the team.

The ninth Absa Cape Epic takes place from 25 March to 1 April 2012, and offers participants a demanding eight-day mountain bike adventure of 780 kilometres with 16 300 metres of climbing from Durbanville to Lourensford Wine Estate. The 2012 route will lead 1 200 athletes, including world champions and dedicated amateurs, through the stage locations of Robertson, Caledon and Oak Valley with the finish at the famous Lourensford Wine Estate, as has been tradition since 2007.

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PRODUCTS

PRODUCTS Momentum launches a unit trust fund for uncertain times Momentum Wealth, a division of Momentum Group Ltd, has unveiled its new Momentum Positive Return Fund which aims to provide capital preservation in real terms (returns that beat inflation) with conservative equity exposure to investors. The fund aims to achieve consistent positive returns by investing in a mix of interestbearing and equity-type assets while at the same time preserving capital against the possibility that the equity-type assets might fall in value. The unit trust fund is characterised as absolute return according to the Association of Savings and Investment in South Africa (ASISA) fund classifications. The fund’s two distinct objectives include: capital preservation – the fund aims to have no negative returns over any rolling 12-month period; and capital growth – to outperform inflation by at least 3.5 per cent a year (net return) over a rolling three-year period. The Momentum Positive Return Fund is suited to conservative investors who want to preserve their investment capital but who also seek capital growth. The fund is particularly suited to retirement-type investors but any conservative investor wanting limited equity exposure will benefit from investing in the fund. According to Mickey Gambale, head of product development for Momentum Wealth, the reason the fund was developed is to

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help investors who need their money to grow ahead of inflation and who require capital preservation so that they don’t lose their invested capital. “We anticipate that markets will remain unpredictable for some time and that investors will increasingly need to find different ways to invest. The old ways of investing will not work in these markets. Investors need to be more creative and we are helping them do this by developing funds that can achieve multiple purposes.”

PSG Asset Management expands product range PSG Asset Management has announced the launch of two new unit trust funds, the PSG Stable Fund and the PSG Income Fund,

providing investors with a more comprehensive range of investment choices. The PSG Stable Fund, which will be managed by Paul Bosman, aims to beat its benchmark of inflation plus four per cent and will reside in the Domestic Asset Allocation Prudential (Low Equity) sector. The PSG Income Fund aims to beat its benchmark of the Alexander Forbes Money Market Index and will reside in the Domestic Fixed Interest (Varied Specialist) sector and will be managed by Heinrich Dietzsch and Mark Seymour. “PSG Asset Management is well-known for its award-winning equity, flexible and balanced funds and the addition of these two new funds – together with the PSG Global Equity Fund – will mean that PSG Asset Management will offer a simple, complete and comprehensive suite of investment choices which can cater for the needs of all investors,” said Mark Cliff, head of communication at PSG Asset Management.


EVENTS

Old Mutual hosts an evening with the experts 1

Old Mutual recently hosted Evening with the Experts engagement sessions for customers in six regions across the country. Customers were invited to enjoy a food and wine pairing at our country’s iconic soccer stadiums. Hosted by Jo-Ann Strauss, attendees were treated to a fascinating inside view into the world of food, wine and investment expertise from the likes of culinary specialist Jean-Pierre Rossouw, celebrity chef Peter Goffe-Wood, wine masters Michael Fridjhon Miles Mossop and Old Mutual Investment specialist, Peter Linley. 2

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1. (From left): Steve and Caresa Combe, Antonio and Amanda Sieni 2. (From left) Top: Ken Russell, Paul Golding, Rowlin Adonis. Bottom: Stephanie Russell, Lesley-Ann Andrews, Melony Adonis 3. (From left) Henry Potgieter, Pam Potgieter, Peter Linley, Michelle Seddon, John Rankin 4. (From left) Miles Mossop, Jo-Ann Strauss, Jean-Pierre Rossouw, Peter Linley, Lynda Cooper, Louise Retief, Kusuni Dlamini, Thembeka Ngugi, Ronaud Maina

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S PA I N , I TA LY, B R I TA I N , D E N M A R K , TUNISIA, SOUTH A F R I C A , L I B YA , T H A I L A N D, G R E E C E

Fitch downgrades Spain Spain’s long-term credit rating of AA+ has been downgraded to AA- by Fitch Ratings. The downgrade is a result of the intensification of the Euro crisis, and the budget outlook of the Spanish regions. According to the ratings agency, the process of rebalancing the Spanish economy is well underway but is not yet complete. It projects annual economic growth to remain below two per cent through to 2015 and unemployment to remain high. Italy agrees to gradual pension reform Italy has accepted raising the retirement age from 65 to 67, but rejected changes to the current plan of retirement after 40 years of contributions regardless of age. The move comes as a result of the country being under immense pressure to reduce debt or alternatively face the possibility of defaulting. Eurozone threatens British economy The Eurozone is a threat to both the British and worldwide economy, according to British Prime Minister David Cameron, who was speaking at the Conservative party’s annual conference in Manchester. Cameron said that Europe urgently needs to fix its fiscal problems to insure itself against what is happening on the continent. “Action needs to be taken to strengthen Europe’s banks to build the Eurozone defences,” added Cameron. Denmark’s three-party coalition to improve economic crisis Denmark’s recently elected first-ever female prime minister has decided on a three-party coalition government. Helle ThorningSchmidt, leader of the Social Democrats, completed a policy programme for the

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new centre-left government after a decade of centre-right rule. The new coalition will consist of the Social Democrats, the Socialist People’s Party and the Social Liberals. “It is a government programme that will bring Denmark out on the other side of the (economic) crisis.” Tunisian Islamist wins first-ever free election The Arab Spring’s first-ever free election was won by the Tunisian Islamist party, Ennahdha, which took 41 per cent of the vote. As the Islamists failed to win an outright majority, talks are underway with rivals regarding a possible formation of an interim coalition government that would lead the county through a transition to democracy. Gordhan warns SA of another economic crisis Finance Minister Pravin Gordhan announced at his medium-term budget policy statement that South Africa faces another economic crisis. Gordhan said R25 billion would be set aside to build up the competitiveness of enterprises over the next six years and will also be used as a rescue fund in the case of a future economic meltdown. Global population reaches seven billion The world’s population has reached seven billion according to the United Nation’s (UN) latest population report and will reach 10 billion by 2100. According to Babatunde Ostimehin, executive director of the UN Population Fund, the issue of population is a crucial one for all humanity and for planet Earth. Ostimehin said that both consumption and population will affect the environment and economic growth as they will drain the world’s resources.

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Libya in shambles after Gaddafi’s longawaited death The death of one of the world’s longestruling autocrats, Libyan leader Muammar Gaddafi and his son Mutassim, has marked the end of a 42-year tyranny. Libya’s interim leader, Mustafa Abdel-Jalil, chairman of the Transitional National Council, has urged NATO to stay in the country until the end of the year, to prevent Gaddafi’s loyalists from regrouping and threatening public safety. The request came after Gaddafi’s family planned to file a war crimes complaint against NATO. Thailand in crisis due to deadly floods The Thailand Government has been forced to announce that it is in crisis mode after being hit by the worst flood in half a century which has already claimed more than 360 lives since mid-July and affected 2.5 million people, with 113 000 in shelters and 720 000 seeking medical attention. Eurozone leaders reach deal on Greek debt Marathon talks between European leaders reached a three-pronged agreement whereby banks holding Greek debt accepted a loss of 50 per cent and agreed to raise more capital to protect against losses resulting from any future government defaults. Talks held in Brussels were aimed at preventing the debt crisis spreading to larger Eurozone economies.


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LIFESTYLE

Mixing modern and traditional – the SA way Villiera is one vineyard along the R304 towards Stellenbosch which connoisseurs should not miss. Visitors will be pleasantly surprised by the variety on offer. The family-owned vineyard was started by cousins Jeff and Simon Grier in 1983 and it has since grown into one of the largest private wineries in South Africa. A diverse range of award-winning wines and Cap Classiques have been produced on this unique, eco-friendly and sustainable vineyard. Villiera is better known for its Cap Classique (bottle-fermented bubbly) which is a stylish range of sparkling wines spurred on with the assistance of French Champagne specialist Jean Louis Denois in the mid-1980s, and has led to the production of some of the finest Method Cap Classique in the country. “Forty per cent of the wine now produced at Villiera is focused on the production of bottlefermented sparkling wine, and it is well positioned in the upper price range owing to its quality and prestige market,” said Cathy Brewer who heads up sales, marketing and exports.

The Monro 2005 (Merlot/Cabernet Sauvignon) is Villiera’s flagship red wine and it has won multiple awards and earned international status. It undergoes a two-year maturation process in new French oak barrels giving well-balanced and robust flavours. Explore the wider range of wines while enjoying a cheeseboard inside the tasting room or from the outside picnic area, or take a self-guided tour through the winery to learn how alternative approaches to sustainability have allowed Villiera to thrive. “The farm has a commitment to biodiversity, water conservation and recycling. We have not sprayed insecticides for the past 10 years as we employ a naturalistic approach to pest-control,

The range includes a non-vintage Tradition Brut, Tradition Brut Rosé, the Villiera Monro Brut – which is one of a few sparkling wines to have been awarded a five-star rating in the John Platter Wine Guide – and the additive-free Villiera Brut Natural. The white wines have a strong reputation – the Chenin Blanc is the favourite on export markets, while the Sauvignon Blanc is highly sought after locally, giving a variety of fruit flavours and is suitably enjoyed with seafood.

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relying on a flock of a 1 000 Peking ducks and over 100 local bird species over the use of insecticides,” Brewer said. As part of its biodiversity programme, Villiera committed to developing a 220hectare reserve of unused land into a wildlife sanctuary; and visitors can pre-book a game drive that takes approximately two hours. Villiera also sells a range of Domaine Grier wines produced on a property it purchased in the South of France in 2006. Visit www.villiera.com for upcoming events, enquires and wine purchases.


AND NOW FOR SOMETHING COMPLETELY DIFFERENT

A pretty penny

can make a pretty profit Coin collecting is a popular hobby worldwide with schoolboys and investment opportunists alike. In fact, the sale of some of the world’s rarest coins has proven to be a very lucrative investment opportunity with some coins worth their weight in gold. The beauty of coin collecting is that the hobby can suit your own budget. Making a smart decision when purchasing rarer coins can provide a huge return on investment. Surviving examples of coins that have mostly been destroyed can sell for up to $20 million. Here are a few examples of the most valuable rare coins that were sold. Flowing Hair Dollar – sold for $7.85 million The Flowing Hair Dollar was the first Dollar coin issued by the United States Federal Government and was minted in 1794 and 1795. The size and weight of the coin were based on the Spanish Dollar, which was popular in trade throughout the Americas. One of the coins was sold in May 2005 for $7.85 million by Rare Coin Wholesalers of Irvine. Double Eagle – sold for $7.59 million Made from 90 per cent gold, the first Double Eagle was minted in 1849, coinciding with the California Gold Rush. Most of these $20 coins were destroyed after the US Government dropped the gold standard in 1933. Of the few thought to be left, one was stolen and bought by Egypt’s King Farouk, a major collector, in 1944. On 30 July 2002, the 1933 Double Eagle was sold to an anonymous bidder at a Sotheby’s auction held in New York for $7.59 million. 1804 – Silver Dollar – sold for $4.14 million This Dollar, of which just 15 specimens are known, is considered to be one of the rarest and most famous coins in the world due to its unique history. A class I Dollar, minted in 1834, sold for $4.14 million on 30 August 1999. 1913 Liberty Head nickel – sold for $3.7 million The 1913 Liberty Head nickel is an American five-cent piece which was produced in extremely limited quantities without the authority of the United States Mint, making it one of the bestknown and most coveted American coins. It is rumoured that if a perfect example of the coin is found, it could fetch up to $20 million. However, the latest sale of the coin was in 2010 and sold for $3.7 million by Heritage Auctions.

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THEY SAID...

A selection of some of the best homegrown and and international quotes that we have found over the last four weeks.

“Hey Mr Zuma, you and your government don’t represent me. You represent your own interests. Our government is worse than the apartheid government because at least we were expecting it from the apartheid government.” Archbishop Emeritus Desmond Tutu lashing out at the ANC government in the wake of the fiasco over the Dalai Lama’s visa.

“We need a credible agreement from European countries to prevent the crisis from getting out of control. We cannot be held hostage to old-fashioned visions or paradigms.” Brazilian President Dilma Rousseff, attending her first Ibsa summit, called for an end to currency protectionism and for strong commitments from the world’s economic giants to control the debt crisis on the periphery of the Eurozone.

“He just shamelessly ripped off other people’s ideas. He’d be a broader guy if he had dropped acid once or gone off to an ashram when he was younger.” Apple co-founder Steve Jobs on rival Bill Gates in a newly released biography of Jobs.

“We need a recognition that we could do better with our money if we do the right things. All of us, and particularly from the parliament side, have to put a lot more pressure on civil servants and accounting officers to account for what they do and what they need to do and what they do not want.” Finance Minister Pravin Gordan calling on his cabinet colleagues and senior officials to behave with modesty and moderation.

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“The response of the markets to the glaring lack of global leadership and political will to deal with the crisis in a coherent way is indicative of how perilously close we are to another Lehman-type moment, but without the ammunition of 2008.” South African Reserve Bank Governor Gill Marcus on the global economy and how South Africa needs to cushion itself by reducing its dependence on European export markets.

“For too long global growth has been sustained by ‘wealthy’ developed-world governments borrowing money, running deficits and artificially keeping economies thriving.” Paul Stewart, managing director of Plexus Asset Management, on why South Africa needs to be concerned about what is currently taking place in Europe.

“We have been criticising the EU for years, we ... have watched the EU go down the pan for years. What have we done to renegotiate our position in Europe? The answer is nothing.” Rebel Conservative MP Richard Drax told Sky News commenting on Britain’s membership of the EU.

“The end of Muammar Gaddafi is the inevitable end of all tyrants who have responded to the free, democratic will of their people with killing and oppression and blood.” Lebanon’s Western-backed opposition leader Saad Hariri.

“When they ask why you are marching, you must say you are marching because you want to live like whites. Everything that whites have, we want it also,” ANC Youth League (ANCYL) president Julius Malema addressing his followers before an ANCYL march.

“You’ve depended on us for reliable, real-time communications, and right now we’re letting you down.” BlackBerry RIM Co-CEO Mike Lazaridis after major outages left customers without Internet connectivity for days around the world.

“It is not our intention to weaken the current pension system, but instead, we seek to strengthen it by extending coverage through a contributory national social security system. This is important since South African pension law does not compel employers to provide a pension fund for employees.” Deputy Minister of Finance, Nhlanhla Nene at a global Forum on Pension Funds conference in Cape Town.



INVESTSA FPI Dec 2011