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30 June 2017 |

First for the professional personal financial adviser



SEVEN TIPS TO THRIVE AS A FINANCIAL ADVISER MoneyMarketing's guide to investing offshore in volatile times

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A tectonic shift is happening in the face-to-face financial planning space

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TURBULENT TIMES SHOULD NOT MEAN TURBULENT INVESTMENTS Outcome-based investing ensures investments are made with an eye on what matters

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Speaking ‘the language of trust’ Bill Bachrach – regarded as the financial services industry’s leading authority on building high-trust client relationships – explains the importance of people skills


hat’s more vital to your success as a financial adviser, your technical skills or your people skills? Tough question? Not really. It’s your people skills. Hands down. No contest. You can hire technical experts to write the financial plan, do the asset allocation, manage the money, assess risk and recommend appropriate insurance, do the tax planning and prepare tax returns, and do the legal work. But none of your people skills can be outsourced. You can’t hire someone else to be charming for you, ask good questions, listen with empathy, be trustworthy, build rapport, give advice with confidence and provide leadership. It’s your people skills that manage your clients’ expectations. It’s your people skills that help you help your clients manage their emotions during turbulent times. It’s your people skills that generate referrals and convert referrals into clients. People skills are like muscles and fitness. They can be developed to be strong and productive and they will

decline if you don’t consistently work to keep them sharp and strong. One of the best books ever written about effective communication is You’ve got to be Believed to be Heard, by Bert Decker, a leading authority on communication. My favourite quote from this great book is, “The most important language in effective communicating is an almost unspoken language, the language of trust.” How do you speak the language of trust? I believe it boils down to three things:


Know the right questions to ask, when to ask them, and how to ask them. In the beginning of a potential business relationship the questions are open-ended and about things that are meaningful, important, significant, and compelling. Questions like: What’s important to you? What are you most passionate about? People? Causes? What’s more important in your life than money? Who do you care about? Continued on page 2

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What are your aspirations for the future? Notice how the questions are oriented to draw out things that are positive and tend to stimulate positive emotions. Consider the positive orientation of these questions in contrast to how the old-school salesperson would tend to focus on questions that draw out problems and fears. Don’t be a salesperson, be a trusted adviser. Speaking the language of trust means that you ask questions where the answers inspire people about their futures, not scare them about the future. The better you understand what inspires a person, the more likely it is that they will feel good about you, even trust you. This puts you in a much better position to make an offer that might help them have the future they aspire to. My friend and colleague, Rick Barrera (author of the best-seller, Over-Promise, Over-Deliver) speaks of the importance of ‘going deep’. What he is referring to is going deep emotionally. To do this, you ask clarifying and expanding questions in response to the answers you get from your initial meaningful, important, significant, and compelling questions. An effective clarifying question is “what do you mean by that?” An effective expanding question is “tell me more about that.” Clarifying questions provide more detail about their answers. Expanding questions give you more information about their answers. Impact questions are some of my favourite questions. They take what you have discovered during a conversation that’s gone emotionally deep from someplace meaningful and bring it to a crescendo about the impact and results this will have on their life. Impact questions are questions like, “And what impact will that have on your life?” “Once you have achieved that, what will be the result be?”


Listen with empathy Listening with empathy is easy if you care about people, especially if you really care about helping people realise what’s important to them. Empathy is the hardest part of the process to learn. An argument could be made that you either care or you don’t. If you don’t care, you’ll struggle to empathise. But don’t give up. You may find that by engaging people in conversations that are meaningful, important, significant, and compelling – and truly listening – that you will become more and more interested, to the point where you actually care. The risk of not caring is that people could feel manipulated by your questions because of the lack of emotional connection. Hopefully, you have discovered that the most rewarding aspect of being a financial adviser is helping people make better financial choices so they get what they want.


Give advice When it’s your turn to talk, be able to make an offer or give advice that is relevant with confidence and conviction, and in a way that tends to inspire action. How do you know what’s relevant? That’s what you discovered while you were listening to the answers to all of your excellent questions.

Bill Bachrach, Bachrach & Associates, Inc.



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30 June 2017


ast month, I read a very interesting article by the internationally recognised expert on applied technology for financial professionals, Joel Bruckenstein, on the Marketwatch website. Bruckenstein reckons that financial advisers will need to develop new skills as the profession continues to evolve. He says the term robo-adviser initially referred to technology-driven platforms that are consumer facing. “These platforms were not designed for use by advisers, but rather to bypass them and compete with them.” At the other end of the spectrum are digital technology platforms that are meant to be used by independent financial advisers while they work with their clients. Bruckenstein cites AdvisorEngine, Jemstep, and Schwab Institutional Intelligent Portfolios as examples. He goes on to examine what differentiates a digital technology platform created for advisers from a retail one. He finds that one significant difference is the ability for advisers to privatelabel the platform with their own branding. Another difference is the ability to tailor the investment selection and the client experience to the needs of the individual firm. Yet, another differentiator between adviser platforms and the early robo advisers is that the former are meant to allow advisers to collaborate with clients and prospects digitally. “At our firm, Technology Tools for Today (T3), we believe that digital collaboration is critical for advisers to succeed in the coming years.” Bruckenstein expects the next big technology likely to disrupt the financial advisory world to be a combination of big data and machine learning. “It is only a matter of time before machines can take over more of the tasks that now require human interaction.” He is not, however, predicting the extinction of human advisers in the near future, but he does believe that there is more automation to come – and that advisers will need to move up the value chain “and develop new skills as the profession continues to evolve.” Janice @MMMagza

ERRATUM In the May issue, MoneyMarketing inserted the incorrect image in the article “Looking on the bright side” on page 10. Gavin Kyte’s image was inserted where George Herman’s image should have been placed. We regret this error.

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30 June 2017




How did you become involved in financial services – was this something you always wanted to do? I studied finance and economics at university after taking an interest in business during high school. My parents were teachers and encouraged all forms of intellectual stimulation. They would actively monitor what I was reading. In addition, I would read my father’s financial magazines after he had gone through them. That sparked an attraction to financial markets that has remained with me through the years.

I don’t think I would have got my internship at an investment bank otherwise. What makes a good investment in today’s economic climate? Good investments create wealth over time. When contemplating an investment, one needs to consider the return objectives and the period in which to achieve these. Understanding risk is critical and I often argue that it should be the cornerstone of any strategy. Keeping track of risks – and particularly those that are within an investor’s control – is paramount in the process. The nature of successful investing is analogous to the fable of the tortoise and the hare, where passion and determination trumps hasty and rash decisionmaking.

This requires investors to read extensively on a broad range of subjects to ensure a well-rounded appreciation of the environment in which we exist. What have been your best – and worst – financial moments? My parents were not high earners, but through making the right investments in their children’s education and instilling a culture of financial prudence by involving me in their financial decisions, a keen sense of money management has been engendered in me that I believe has brought me through tough times. Bad financial moments will occur when one strays from one’s objectives or principles. I try not to be moved by emotion or time pressure, but this is much easier said than done if we account for human nature.


What was your first investment and do you still have it? My first independent investment was the decision to change majors from accounting to finance at university. Unfortunately, through hubris, I opened an online trading account and lost quite a bit through not understanding the risks involved. Over the years, I have learnt that to be successful in the market, an investor must be mindful and deliberate in making decisions. What will you teach your children about money? Money is a means to an end and allows one the luxury of choice to explore and develop one’s talents. However, this requires an appreciation of the efforts and sacrifices that one has to make to acquire it, the sensibilities one needs to keep it and the foresight not to squander it. For children, this often seems unfair and unrealistic at the time, but it is a lesson I hope will last a lifetime.

UPS & DOWNS Specialist bank and asset manager, Investec, said pretax operating profit rose 13% to 643.4 million pounds in the year ended March 31 from 567.4 million pounds a year earlier. Net interest income rose 19% to 680.5 million pounds from 571.9 million pounds. Investec increased its full year dividend to 23 pence from 21 pence a year earlier. The company added that it plans to move into offering life insurance to its clients – from the third

quarter of this year – to fill what it identifies as a gap in its product range. CEO Stephen Koseff said during the company’s results presentation that Investec has had a life insurance licence for decades, “But we never used it and we feel it’s a very appropriate product to offer to our client base.”

MTN’s Rwanda operation has been hit with a regulatory fine of $8.5 million (R111 million) from the Rwanda Utilities Regulatory Authority. The mobile phone operator said in a statement that the fine related to noncompliance with the directives issued by the regulator prohibiting the inclusion of MTN Rwanda in the MTN South and East Africa (SEA) IT hub based outside of the

country in Uganda. “MTN has been engaging with the regulator on this matter over the past four months. MTN Rwanda is currently studying the official notification and will continue to engage with the regulator on this matter.” Last year, MTN Nigeria agreed to a reduced $1.67-billion settlement with the Nigerian Communications Commission for not registering 5.1 million SIM cards.

The 8th edition of the Africa Economy Builders Awards recognised Delphine Traoré Maïdou as CEO of the Year for the significant contribution she made to Africa’s economy as CEO of Allianz Global Corporate & Specialty (AGCS) Africa from 2012 to 2017 while based in Johannesburg. The award ceremony took place in Abidjan, Ivory Coast. These awards celebrate and promote individuals and organisations that play key roles in developing African economies.

The R32 billion black-owned Mergence group has acquired a majority stake in Riparian, the largest independent trade commodity finance firm in South Africa, now rebranded as Mergence Commodity Finance. Masimo A-Badimo-Magerman, co-founder and Managing Director of the Mergence group, says the acquisition is in line with the Mergence vision of becoming a world-class diversified financial services group. Founded in 2004, the group has three subsidiary companies ranging across derivatives trading, property and investment management which now includes commodity finance. FedGroup was honoured for the fourth year running at the prestigious Excellence Awards. This year, FedGroup won its fourth consecutive (and second consecutive gold) award in the Group Life/Risk category. FedGroup was also named in the top three in the country in Investment Products, and Group Pension and Provident Funds. The reason the industry takes these awards so seriously, says FedGroup Life CEO, Walter van der Merwe, is because these awards cannot be entered into and are determined solely by the ratings received from brokers in this field: “Because of this impartiality, they are highly coveted in the industry.”   Sasfin Capital is pleased to announce the appointment of Paul Pretorius to the position of Senior Corporate Finance Transactor. Pretorius joined Sasfin on 2 May, 2017.  Pretorius, a qualified Chartered Accountant, has had an extensive career in corporate finance and brings more than 20 years’ experience to the role. He spent eight years at Rothschild where he was an Associate Director, and enjoyed stints at Coronation Capital and Coopers & Lybrand (now PwC). Pretorius is delighted to join Sasfin Capital: “I am excited to assist in growing a strong investment banking franchise by leveraging Sasfin’s brand, its balance sheet and a highly qualified and energetic team.”

30 June 2017

PEARL TSOTETSI, Private Equity Transactor, RMB Ventures

MB Ventures, a subsidiary of FirstRand Limited, together with sister private equity company RMB Corvest, a BEE partner, private equity company the Mineworkers’ Investors Company (MIC), and management successfully finalised the complete buy-out of Universal Industries Corporation (Universal). Universal is a leading South African manufacturer and distributor of commercial food preparation and storage equipment to the food retail, restaurants, quick service restaurants and hospitality industries. The group consists of eight separate market leading businesses supplying both long-term and relatively shorter life capital equipment to the defensive food services sector both in South Africa and the rest of Africa. Its product range includes refrigerated and hot display cases, commercial ovens, commercial kitchen appliances, kitchen utensils and industrial cookware.

The businesses across the group export to over 65 countries across the world, with a concentration in sub-Saharan Africa. Exports currently account for about 25% of the group’s turnover. Recent investments in Nigeria and Kenya provide the platform for continued growth in West and East Africa. The business has an excellent management team and two of the three founders remain materially invested and actively engaged in the business. The founders and management team have a track record of growing the business both organically and through value accretive acquisitions. The business has grown organically by adding different and complementary products or adding different brands to its existing offering. Acquisitions have played an important role in the group’s history with five of the group’s businesses acquired in the last six years. The group distinguishes itself through significant scale, established distribution networks, a diverse product range, manufacturing capacity and its ability to customise products to customers’ requirements. RMB Ventures’ investment criteria involve identifying and investing in established businesses with leading or unique market positions and a

proven ability to generate cash flow. Its investment philosophy centres on backing strong management teams with a proven track record. RMB Ventures looks at companies across all sectors except for primary mining and primary agriculture. Universal met the above criteria and has further attractive characteristics to RMB Ventures such as its meaningful presence outside South Africa, the defensive end markets it serves, as well as management’s demonstrated ability to continue to grow the business both organically and through value accretive acquisitions. RMB Ventures does not get involved in the dayto-day operations of the business but rather takes a keen interest in its strategic direction which is achieved through participation on the board of directors and various operating committees. RMB Ventures acts as a sounding board for management as well as assisting management in key decisions including mergers and acquisitions, optimising capital structure of the business, succession planning and implementing appropriate incentive schemes, to name a few. Its typical investment horizon is five to seven years though this time is flexible due to RMB Ventures being an on-balance sheet investor.



RMB Ventures acquires Universal Industries, a proudly South African, sub-Saharan leader in food preparation and hospitality equipment. RMB Ventures with a consortium including RMB Corvest and MIC partnered management in acquiring this leading African food preparation and hospitality equipment business. This deal seeks to support management’s expansion strategies and reinforce its position in markets across Africa. Our private equity approach of adding value beyond money continues to build our reputation as a trusted partner for leading South African companies. For more information contact Muhammed Moosa on +27 11 282-8448, email or Pearl Tsotetsi on +27 11 282-4966,


Complete buy-out of Universal Industries finalised

A leading market position and expansion opportunities create an attractive investment





GAIL FRY Compliance Officer, Compli-Serve SA

New PPR rules in regulatory reform


et’s begin by saying that it’s completely natural to be feeling some discomfort around the insurance regulatory landscape at the moment. Change is often coupled with confusion, especially where the change appears disjointed. It’s important to keep two things in mind. Firstly, further regulatory reform is coming but not all of it is here yet. Secondly, because not all of the changes are in place, it’s important not to make hasty decisions without a clear understanding of actual requirements.  Before unpacking the expected reforms, we should begin with a brief overview of the current legislative architecture.  Market Conduct  Currently the Short and Long Term Insurance Acts regulate the market conduct, reporting and liquidity and capital requirements of insurance companies. The FAIS Act regulates advice giving and the provision of intermediary services and FAIS applies to insurers and intermediaries alike. The Policy Holder Protection Rules (PPR) are in place to allow short-term personal lines policy holders to make informed decisions in regard to shortterm insurance products, and to ensure that the parties involved conduct business fairly and with due care and diligence. Market conduct is the relevant theme. Solvency is a subject for another day. The legislative changes being introduced will be effected in two tranches. RDR It is important to contextualise the Retail Distribution Review (RDR) at this point. It is not legislation and does not form part of the legislative architecture. RDR was a review of how products are being sold into the market. The RDR findings have, however, informed the Regulator around desirable and undesirable distribution models and remuneration strategies. Findings from the review will be included in the imminent regulatory changes. Conduct of Financial Institutions Bill  Tranche 1 will see certain market conduct reforms that cannot wait until the enactment of the Conduct of Financial Institutions Bill (CoFI). CoFI is the Act that will integrate all market conduct legislation into one. Tranche 1 changes will include changes in or to: remuneration for intermediary services; outsourcing arrangements; complaints management; binder regulations; consumer credit insurance; advertising; claims management; alignment with insurance core principles; proposals emanating from the office of the various Ombuds; the charging of fees by Insurers over and above premiums (deemed an undesirable business practice); better alignment between Insurance and FAIS Acts, PPR and the closing of regulatory gaps that have been identified. General principles of fairness have been introduced and there is no doubt that binder holders and administrators will be affected. The management of conflicts of interest is key and the reforms will see an extension in the scope of prohibited business relationships. The scope of Non-Mandated Intermediaries (NMI) binders will be reduced and NMI binder holders will be expected to provide far more comprehensible and reliable data to insurers. Greater governance and oversight will be expected by insurers. PPR will be added to significantly in Tranche 1, but a further, more comprehensive review of PPR will form part of the broader review of all existing Conduct of Business legislative frameworks as part of Phase 2 of Twin Peaks and the development of the CoFI Bill. Tranche 1 reforms were planned to take effect in the 2nd quarter of 2017. This hasn’t happened yet. The Regulator is aiming to afford all stakeholders as much legal certainty as possible and sufficient time to prepare for implementation.

30 June 2017

Adding value to clients’ portfolios in difficult times MoneyMarketing spoke to Johannesburg-based independent financial adviser, Peter-John (PJ) Marais of Progressive Wealth, about giving financial advice in a country that has recently been relegated to junk status. Given the current economic climate in SA, how difficult is it now to provide financial advice to clients?

Over the last couple of months, clients have often said, “We wouldn’t want to be in your shoes.” At Progressive Wealth, we agree that it’s at times like these – through consistent engagement and communication with clients – that we really add value to their portfolios. Due to the current tough economic climate and more mediocre investment returns, more scenarios unfold whereby clients may be retrenched or have their salaries cut. This is when we need to sit them down and discuss the best way forward in terms of structuring their financial plan. Often, when clients are faced with a challenging financial situation, the first cost they look to cut is that of their personal risk cover (such as income protection or life cover). The reality is that these are aspects of one’s portfolio that should be given priority in times such as the present.

How do you react when clients take fright and respond emotionally to short-term news flow?

Certain clients are more sensitive to short term negative news than others and may react irrationally by wanting to make drastic changes to their portfolios. This is where we aim to add value as their financial advisers and remind them of why they invested in a particular portfolio and the underlying investment strategy. Sure, these discussions can be challenging, but this is after all what our clients are paying us for. I like to think that in all cases, clients ultimately understand that they’re not investing money for three or six months. We survived a tough year in 2016 and the current environment remains difficult, yet we need to stick to our investment principles.

Double digit returns appear to be over, so how do you manage clients’ expectations?

From a South African point of view, we enjoyed double digit returns from the All Share Index for over a decade and a half. Last year – and even in 2015 – investors saw that returns were definitely a lot more muted than what they had seen in the past. We’ve had a period where equities only moved sideways and clients see these numbers on their quarterly and annual statements. We’ve been preparing clients for this for the last three to four years. Post the 2008 global financial crisis, we saw a great recovery. However, by the very speed and nature of this recovery, flags were raised for us. Clients need to understand that the markets were coming back from a very low base and that consistent double-digit returns were not sustainable. This does make for important discussions with all our clients, particularly those thinking about post-retirement – or those clients who are retired and living off their retirement capital. Clients need to realise that they’re not investing for the short term. We focus on adding value by providing returns above those of cash and inflation over the medium to long-term. Anxious clients that are concerned about single digit returns may be tempted to switch their money into cash. Whilst this can offer them some short-term peace of mind, it will lock them into single digit returns and they could miss out on the opportunity to benefit from strong market performance over the longer term.

What type of funds do you favour at the moment?

Our key investment philosophy – amongst others – has always been to maintain a diversified portfolio. The funds we recommend to our clients basically follow suit. We do not adopt a particular investment style but prefer to have a blend to ensure that our portfolios will have asset managers that perform differently during different market conditions. The core of our portfolios consists of multi asset and flexible funds. Over the last few years we have looked to include asset managers that have a higher tilt towards offshore. If we see opportunities, for example, the rand strengthening dramatically as it did last year; Peter-John we will on occasion tweak a client’s portfolio to have (PJ) Marais, Progressive a bigger exposure to offshore equities. Wealth


30 June 2017


Investors prefer mix of human and robo-advice, says survey




Sculpture by Beth Diane Armstrong


including children’s financial needs (cited by 67% of respondents), parents’ long-term financial needs (58%) and estate and tax planning (42%). Divided feelings for conventional services The survey found that investors do not show a strong preference for either dedicated human advisory or conventional roboadvisory services. • 38% of all investors said they would never take advice from their financial adviser without first consulting another source. Nearly threequarters (72%) of the wealthiest investors – those with a net worth of more than $10 million – and more than half (56%) of those with a net worth between $1.5 million and $10 million, said they believe that human advisers don’t provide sufficient value. • Roughly half (54%) of investors said they have received very good advice from their robo-adviser, and 51% said they trust their robo-adviser completely and would recommend it to family members or friends. However, approximately the same number (52%) said they would never take the advice of their robo-adviser without first consulting another source. Unmet needs among female investors The research found that the needs of female investors differ from those of male investors and suggests that wealth management firms should adjust their service offerings accordingly. For instance, the female respondents were less likely than male respondents to have reported having a good understanding of their investments (61% vs. 75%) and talking to their advisers more than once per year (44% vs. 58%). In addition, female investors were more likely than male investors – 62% vs. 54% – to say they prefer having the autonomy to pay 3/17/16upon 4:12:39 PM based the service actually provided, even

though dedicated financial advisers in the US typically use fee structures based on a percentage of their assets under management. Female investors were also more likely than male investors to use dedicated-advisor services more than any other type of service (34% vs. 28%). “Women present an extraordinary growth opportunity for wealth management firms, yet few firms have changed their advisory model to meet women’s needs,” Thompson says. “Many women prefer a different approach to wealth management than the one many firms have traditionally offered. Empowered women want advisers to understand their ‘life pictures’ and ‘financial journeys’ rather than just their investments.” Some other key findings of the report include: • Nearly seven out of 10 millennials (69%) are amenable to receiving investment advice from Google, Facebook, Amazon and other non-financial companies. • Unlike baby boomers, millennials do not believe that traditional human advisory services provide any significant benefit over hybrid or conventional robo-advisory services, with nearly two-thirds (64%) of millennials saying they prefer hybrid advice, compared with only 28% of baby boomers. • Millennials are far less trusting of human advisers than are baby boomers, being nearly three times as likely to say they would never take the advice of their adviser without consulting another source first (52% of millennials vs. 18% of baby boomers). • A large number of investors are concerned about the cost of the advice they receive and are confused about fees: 42% said their advisory service is too expensive; 33% said they don’t know how much they pay for the advice; and 38% said they don’t understand how they are charged.


wo-thirds (68%) of emerging wealthy and high-net-worth investors in North America prefer hybrid investment advice – a combination of traditional advisory services and low-cost digital tools – over either a dedicated human adviser or conventional robo-advisory services. This is according to new research by Accenture. Based on a survey of more than 1 300 investors across income brackets and age groups in North America, the report, The New Face of Wealth Management: In the Era of Hybrid Advice, is part of a multi-year Accenture research initiative studying the needs of modern investors in the rapidly evolving landscape for financial advice. “The ‘robo versus human adviser’ debate has lost relevance for investors and wealth and asset managers in North America,” says Kendra Thompson, Managing Director and Head of Accenture’s global wealth management practice. “Our research clearly shows that investors want a combination of automated and human advisory services and that significant numbers of Millennials and Gen Xers have already turned to hybrid services.” Overall, survey respondents were more likely to be satisfied with hybrid financial advisory services than with human-only or robo-only advisory services, in terms of ease of money management, digital tools, explanation of fees, customised services and low-cost products, according to the research. Digital technology – the web-based channels, tools and applications that enable a moretransparent and real-time understanding of a client’s investments – make hybrid models possible. Investors using hybrid advice were nearly 50% more likely than those using only traditional or entirely automated advisory services to say they proactively seek and receive assistance on financial planning (64% versus 44%). Investors who use hybrid advisory services are also among the most likely to have Prescient Money Mktg 1-4 advisers Goose Ad_r1.pdf discussed family needs with their -

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30 June 2017 Market

KOBUS BARNARD CEO, Allegiance Consulting


Seven tips to thrive as a financial adviser

s a financial planner, you may not be blamed if you feel overwhelmed by all the noises and changes in the financial services industry. A tectonic shift is happening in the face-to-face financial planning space, brought about by roboadvisers, Big Data, Artificial Intelligence (learning systems), new entrants, direct players, digital channels and regulation. In this space, the Avalon financial planning suite will enable financial advisers to thrive. Understand that business can be reduced to three components that should synthesize your value proposition i.e. (1) market, (2) products and (3) systems. These form your value proposition.

high value market might be 10 times more than the return on time in the middle market. Do not try and be all things to all people. Understand the economics of a financial practice, now and in the future. Understand the impact of your market on the economics.

Tip 1 Value proposition Have a clear understanding of your value proposition. You have to set time aside to truly think about your value offering. Get external help if you need.

Tip 4 Enable your practice with the right system Pick a system that aligns with and enables your value proposition. If you are in the business of financial planning, make sure that your system delivers the best financial planning. Make sure that you can compete with the best of the best. If you work in the high value markets, clients expect advice excellence. This is a crucial element to thrive in the market.

Tip 2 Pick your market Be specific about your market. Remember marketing is always about something specific to someone specific. Understand the return in a

Tip 3 Financial advice is your product Make financial advice your product. Advice is probably the most important financial product that you will ever sell. Everything starts there. Once clients buy into a plan, the plan becomes the focus and the basis for all solutions. It is an important transition from product focus to advice focus.



Tip 5 The importance of relationships A successful financial practice is built upon relationships. We cannot reduce relationships to an automated SMS on birthdays. It is so much more than that. Relationships should be deep, personal and meaningful. Once you have built a client base built on sincere and meaningful relationships, your business will thrive. Tip 6 Never stop learning Knowledge is power. Never stop learning. If you are to specialise in a niche, you need to be the best in that niche. One way to ensure that you are and remain the best is to never stop learning. Learn, learn, learn. Set time aside every week to ensure that you grow your knowledge. Read as much as you can. Business books can be a wonderful source of ideas, inspiration and improvement. Tip 7 As a final thought, love what you do and do what you love Being a financial adviser is one of the best careers you could ever have. You have the power to change people’s lives for the better. Realise the importance of what you do. Enjoy what you do.



Cybercrime affects almost half of UK advisers


ntelliflo, a UK supplier of specialist online software for IFAs and the NCC Group, a global expert in cyber security and risk mitigation, recently teamed up to publish a paper entitled Mitigating Cyber Risk in the Financial Services Sector. The paper’s purpose is to outline how financial advisers, as part of a broader group of organisations operating in the financial services sector, can mitigate cyber risk. The paper draws on the input of consumer and adviser facing surveys, which indicate that 44% of advisers in the UK have been impacted by cybercrime. Disturbingly for advisers, 82% of 500 consumers surveyed would look to change their financial adviser, or not appoint them in the first place, if it was public knowledge that the adviser had been subjected to a cyber-attack. The paper finds that cyber-attacks are on the rise and that “no sector is more of a target than the financial industry. Customer details, sensitive information and money provide a treasure trove of assets for attackers to target. Staying ahead of the latest threats is crucial.” How financial advisers can protect themselves from cyber attacks The paper suggests the following: • Develop a cyber security strategy Despite the increase in cyber-attacks on financial services institutions, there is often a lack of vision and strategy

to articulate how firms of all sizes will address current gaps, defend against evolving threats and protect themselves in the long term. • Identify the ‘crown jewels’ The crown jewels are your data sets and they are what hackers want. These assets have significant value and sensitivity, providing an attractive target for a motivated attacker. It is vital that organisations identify their ‘crown jewels’ to provide a foundation for targeted and prioritised risk assessment. • Improve awareness of cyber-attacks – ransomware Ransomware is a type of malware that restricts access to systems in some way, often by encrypting files and then demanding a ransom to obtain access. When subjected to a ransomware attack, many victims think they have no choice but to

pay. But that is not the case. It is important to remember that you are dealing with criminals. If you pay them, what next? • Improve awareness of cyber-attacks – social engineering The methods employed to gain access to systems are more sophisticated than ever before. Examples include one organisation hiring phishing specialists who obtained a companywide email address so they could email all staff. The email was made to look like it was an internal email and most staff clicked through and entered their credentials. • Increase employee cyber security awareness When it comes to cyber security, your employees are often the weakest link. Cyber security is the responsibility of everyone who works for you.

Attackers increasingly send emails purporting to be from someone that the user knows, as this means that the user is more likely to click on an unknown link. This type of attack is known as phishing. Implement password protection Putting a strong password in place in order to access a machine or in order to access programmes and some web functionality is so widespread as to be considered a minimum requirement. But it really is the minimum. Yet many people do not password protect all of their devices. Mobile phones, so susceptible to loss or theft, are often not password protected. Implement two-factor authentication Two-factor authentication is increasingly being deployed by firms to reduce the risk of unwanted access to their systems. Develop a vulnerability management programme You can also be attacked via weak points in your software. It is imperative that you keep your software and machines fully up to date at all times with the latest patches. Ensure regular backups Keeping your data backed up at regular intervals is crucial in minimising the impact of any cyberattack. The more recently your data has been backed up prior to an attack, the less work you will have to do to recover lost ground.







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30 June 2017

GAVIN KYTE Business Development, Laurium Capital

Choosing the right balanced fund


ver the past few years, ASISA Multi-Asset High Equity Funds have become hugely popular among South African investors. These funds, commonly known in the retail universe as Balanced Funds, have attracted a majority share of the market flows. Laurium Capital, the independently owned asset manager based in Johannesburg, launched the Laurium Balanced Prescient Fund on the 9th December 2015. After building an excellent track record in hedge funds since 2008, Laurium entered the unit trust space in February 2013 with the launch of the Laurium Flexible Prescient Fund. As at end April 2017, the Laurium Flexible Fund is ranked number 1 since inception, out of 70 funds in the sector, with an annualised return of 16.8% net of fees against the FTSE/JSE All Share total return of 10.2%. This is a 6.6% outperformance per annum over 4.5 years, but with much lower volatility and fewer drawdowns. The decision to follow on the success of the Flexible Fund and introduce a Regulation 28-compliant Balanced Fund was an easy

Source: Morningstar Direct

one. Here are some details on three characteristics of a Multi-Asset Fund on which Laurium places its considerable focus. Dynamic Asset Allocation Asset allocation is an investment portfolio technique that aims to balance risk and create diversification by dividing assets among major categories (both locally and globally) such as cash, bonds, equities, and property. Each asset class has different levels of return and risk, so each will behave differently over time. Our investment team adopts a fundamental valuation-based philosophy and a disciplined investment process, combined with an opportunistic mind set to provide investors with sustainable risk-adjusted investment returns. Consistent Performance While performance is not everything, it is very important. At Laurium we see ourselves as a competitive investment team and strive to have consistent top quartile performance on all our funds, over all periods. Investors often try to pick winners by selecting funds with top performance rankings over short time periods.

AADIL OMAR Equity Analyst at Prudential Investment Managers

Now that global internet giant Naspers’ weighting on the FTSE/JSE All Share Index has risen to nearly 17% – far more than the nextlargest companies MTN and Sasol at 4.2% each – it is likely to represent a large share of many local investment portfolios. Combined with its high P/E ratio of 78 times (at the time of writing), investors may be becoming concerned that their exposure to the share may be too risky. However, Prudential has been overweight Naspers in both the Prudential Equity Fund and Prudential Dividend Maximiser Fund (to a lesser extent) based on what we believe is an attractive valuation. Over the last 15 years, Naspers has been successful in using the high levels of cash generated by its South African (and latterly African) media businesses, which are largely subscriptionbased, to acquire stakes in internet companies it identifies as being capable of strong growth, with Tencent being its jewel in the crown to date. Today, the company operates in 130 countries and owns or has interests in some 44 well-

What matters is maintaining consistent outperformance over time, which will produce better long-term returns and lower risk. The Laurium Balanced Fund is off to a very promising start on the performance numbers, with a top 10 ranking out of 171 funds over three months, six months, one year, and from inception. (Ranked 8/171 since inception – 2015-12-09). At Laurium, we continually challenge ourselves to have a rigorous investment and operational process, and all our funds are underpinned by a common investment philosophy. We believe that our skills in relative-value stock selection, combined with a disciplined portfolio construction and risk-management process should deliver superior riskadjusted returns over time. Low Correlation Constructing a risk-profiled portfolio of unit trust funds is common practice in financial planning. Many advisers have

done well to select good Balanced Funds for their clients, but often fall short when it comes to looking at the correlation of the funds that they have chosen. It is very common to see the largest or ‘big 4’ Balanced Funds being combined in portfolios for clients, where due to their huge size and our limited investment universe in South Africa, they are highly correlated, so diversification benefits are negligible. The Correlation Matrix, above, displays the correlation of the Laurium Balanced Fund against the four biggest Balanced Funds by assets size. The graph clearly illustrates the high correlation between the larger Balanced Funds, on average having a 0.90% correlation to each other. The Laurium Balanced Fund has on average a 0.65% correlation to these managers. It visibly demonstrates the diversification and risk management benefits when adding to your clients’ overall investment portfolio, an allocation to the Laurium Balanced Fund.

Naspers: Should investors worry about their exposure? known brands. Annual revenues stand at over US$12 billion, with only 4% of this coming from its original operations in South Africa, and the lion’s share, some 72%, from its global internet operations. Tencent dominates the group’s revenue and profit growth. A common way to analyse the value of a high P/E, fast-growing stock like Naspers (and other technology companies) is to use the P/E Growth (PEG) ratio. When considering Tencent as a separately listed company, its 12-month forward P/E ratio is currently at 29 times, while the consensus forecast earnings growth is also about 29%, giving it a PEG ratio of 1. We can observe that the market is comfortable pricing a number of other technology companies on similar PEG ratios, suggesting a reasonable level for Tencent based on this metric. When we compare the Naspers share price to the market value of its 34% stake in Tencent, it is evident that the market attaches a discount of approximately 20% to the holding, while attributing

zero value to all of Naspers’ other internet and pay TV assets. We find this an attractive feature of the Naspers investment case, which can be viewed as a free call option on a portfolio of businesses, providing the buyer of Naspers a margin of safety. Given Naspers’ global diversification and exposure to high-growth regions, its potential growth path is a promising one, especially in light of its willingness to invest for higher market share and platform growth over the longer term. With Tencent it has demonstrated some success in picking winners, while also being able to realise value from its investments along the way. We believe Naspers is well positioned to continue to grow its earnings faster than many other JSE-listed companies, and see the valuation as reasonable for this expected growth, as well as the risk involved. When constructing their portfolios, investors should also consider the size of their Naspers holding in line with their appropriate risk appetite, preferably with the advice of a financial adviser.

DID YOU KNOW? Less than 20% of South Africans have sufficient savings to maintain their standard of living in retirement… Momentum would like to help investors meet their financial goals with as few surprises as possible along the way. We can do this with our outcome-based investment solutions, where the investors’ needs are placed at the centre of the investment process. It’s all about putting

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outcome-based investing



30 June 2017

Financial stress pervasive amongst the middle class


even out of 10 middle class workers experience some form of financial stress, according to the findings of the 2017 Sanlam Benchmark Survey. The annual retirement funding study, which has now delved into the financial wellness of employees in the workplace, shows that financial stress has reached dangerous levels in South Africa and has become pervasive both at the workplace and in the home. “The research shows that financial stress impairs the quality of our lives and diminishes our ability to be productive at work,” says Viresh Maharaj, CEO of Sanlam Employee Benefits: Client Solutions. The sample consisted of 1 317 well-educated professionals with 60% earning more than R300 000 pa. 

Maharaj says, “This is our middle class – the spine of our economy, our tax base and our hope for the future. And they are stressed. We believe that the findings point to a dire need for financial coaching and increased employer involvement in the financial wellness of employees.” The survey found that:

• Nearly half of the respondents find themselves with a budget deficit a few times a year where their income is less than their expenditure • The primary source of stress for 55% of respondents comes from their short-term debt, while 41% worry that they won’t have enough set aside for unanticipated emergencies • One out of nine say that they are just simply not coping with their financial stress • One out of three cope with their debt by reducing expenditure • One out of five has to borrow from friends and family to makes ends meet • Seven out of 10 believe that they will have to reduce their standard of living when they retire • Three out of five are not making provision for their medical aid premiums in retirement.

“The starting point to address many of the issues is to gain a better understanding,” says Trurman Zuma, CE of Sanlam Personal Finance: Savings, “But, while the level of understanding is at an all-time high due to the combined efforts of the media and providers – it is still too low.” “Our people need help. And, in this context, help means advisers who are able to work with the middle class to educate and help coach them towards consistently displaying the right behaviours and making better decisions,” he adds. “In fact, just over FINANCIAL 80% of the STRESS HAS respondents indicated REACHED that they do DANGEROUS value financial LEVELS IN SA advice. Good quality advice can have a material impact on financial stress but access to and affordability of quality advice may act as barriers to many respondents as only 52% of respondents actually have advisers.”  According to Maharaj: “Access to and affordability of quality advice are issues across the middle class and more so for blue collar workers – but this can be addressed via the mechanism of the employer. Workplace based financial wellness programmes provide the opportunity for employers to address the drivers of their employees’ financial stress at scale – and in an inclusive manner.

“Six out of 10 respondents indicated that they would be interested in such programmes with another two out of 10 being open to such initiatives. Respondents expressed an appetite for such programmes to include access to financial advisers, financial literacy training and budgeting tools. The stress is real. So are the potential solutions.”

Viresh Maharaj, CEO of Sanlam Employee Benefits: Client Solutions

Trurman Zuma, CE of Sanlam Personal Finance: Savings

Itransact launches robo-adviser Itransact, best known for the provision of Exchange Traded Fund (ETF) based solutions, has launched its much anticipated robo-adviser tool called ItransactGO. It is designed to assist both investors and financial advisers in setting, tracking and achieving investment goals by creating personal low cost investment portfolios or retirement annuities that will automatically rebalance the portfolios and track the markets. “ItransactGO is 100% independent. Once it understands your profile, it will look across all the asset classes like cash, bonds, property, domestic and offshore equities, comprising over fifty low cost ETFs for the most efficient mix and then combine them in such a way to form a portfolio that will best suit an investor’s investment goal,” says Lance Solms, head of Itransact.

“It will not favour one asset manager or fund over another, it will only pick the best funds for investors. It will automatically rebalance your portfolio so that you never have to worry about the mix of assets you have chosen. It will allow you to switch between different risk profiles as your life style changes and where one needs to speak to a human, one can call a highly trained contact centre. Investing in the market has never been simpler,” Solms added. He confirmed that the providers of the funds underlying the portfolios will be well known financial services companies such as Absa Capital, Ashburton, db x-trackers (Deutsche Bank), Coreshares, Investec, Stanlib and Satrix ETFs, all of which are governed by the Financial Markets (FMA), Collective Investment Schemes (CISCA) and Financial Advisory & Intermediaries (FAIS) Acts.

June 2017 | VOLUME 14


Add energy to your investments Offshore property unveils interesting opportunities

Running from





30 June 2017



uestion marks over Brexit, Donald Trump and ‘junk status’ mean investors are facing much uncertainty. Given this backdrop, Marriott highlights how investing in reliable dividend payers helps ensure a more predictable outcome and why consumer driven multinational companies are likely to be among the best returning investments over the next decade.

Predictable Returns Marriott brings more certainty to investing by ensuring consistent and reliable dividend growth from investments through a security selection process that filters out companies where future dividends are hard to predict. This filtering minimises a number of risks, ensuring investments deliver reliable and growing dividends into the future, which ultimately translates into predictable capital growth. Charts 1 and 2 illustrate how a company’s share price grows in line with its dividends over time. Marriott’s security-selection filter lists the requirements a company must meet to be considered for inclusion in a Marriott portfolio. The companies that have made it through the filtering process are highlighted below. These are well established businesses that have strong balance sheets with long track records of paying reliable dividends. They also tend to share five characteristics that help ensure future dividends are secure: 1) Fulfil a basic need 2) Strong brands 3) Pricing power 4) Growing markets 5) Diversification. Good Returns As well as offering investors a more predictable outcome, Marriott believes these multinationals will be among the best returning investments over the next decade as they are well positioned to benefit from two important longer term trends: developing market consumerism and technology-enabled efficiencies.


Source: Bloomberg


Consumerism The GDP growth of many major emerging markets is increasingly being driven by household spending as they transition from investment-led to consumption-driven economies. Described as ‘the biggest growth opportunity in the history of capitalism’, McKinsey estimates that by 2025 annual consumption in developing markets will increase by $18 trillion and account for half of the world’s consumption. This is positive for the dividend and capital growth prospects of the companies in Marriott’s portfolios as they offer goods and services that form an integral part of the daily lives of consumers across the globe.


Source: Marriott


Efficiencies The companies that have made it through Marriott’s filtering process are also unlikely to be disrupted by changing technology and therefore stand to be major beneficiaries of innovation in the years ahead. Cisco, a worldwide leader in IT, estimates that automation will produce a bottom line improvement for global businesses of approximately $14 trillion over the next decade; this represents approximately one fifth of current global profits. Widening margins will likely result in more dividend and capital growth from Marriott’s chosen multinationals that already stand to benefit from the rapidly growing consuming class in the developing world. In addition to a favourable growth outlook, the companies Marriott invests in are fairly priced, as illustrated below: Ratio

Current (April 2017)

Historic Average*

Average PE Ratio



Average Dividend Yield



Reliable dividends, a favourable growth outlook and fair prices all add up to being amongst the best returns with less risk in Marriott’s opinion.




If you’re in South Africa,

Today, in investments, everything is connected.

you’re in its power supply.

Like our economy and the power that keeps it running.

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because it’s both an excellent investment, and it’s something our economy depends on. At STANLIB, we’re proud to deliver returns that are as good for portfolios as they are for the future. #ConnectedInvesting. STANLIB is an authorised financial services provider.


KEILLEN NDLOVU, STANLIB Head of Listed Property



ver time, property has continued to prove its worth as an inflation-beating asset class. However, as with any asset class, the key to good returns is finding unique opportunities. Entering a late cycle period, global property is expected to continue to moderate from the high returns of recent years. Returns for global property of 5.72% in US dollars in 2016 is some way off the 22.1% US dollar returns of 2014. However, from an investment perspective, valuations continue to signal possible room for growth, as they are broadly 20% lower than at their peak just prior to the 2008 global financial crisis. In some regions, listed indices have come off while underlying assets continue to grow. The June 2016 Brexit vote impacted heavily on UK and European REITs. The S&P UK REIT Index fell by nearly 23% immediately following the vote but has since recouped most losses based on robust underlying assets. The UK’s second biggest commercial sale of a building was the ‘Cheesegrater’, bought by a Chinese consortium for £1.15 billion in October, 26% above its valuation the month before. The fact that investors were prepared to pay over a quarter of its value more in price, and that there was considerable other buyer interest, provides an indication of the appetite for UK commercial property. UK residential property remains volatile pending the outcome of Brexit negotiations and the potential decline in residential accommodation if workers

are required to move GLOBAL LISTED PROPERTY NET ASSET VALUES out of London to other European cities. House prices in the high end of the London residential market have run hard based on low interest rates, and are not likely to experience significant further upside over the next 12 to 24 months. Well-performing international property assets are those located in prime areas within capital cities around the world, such as London, New York, Boston, and Washington. This is where multi-nationals portfolio looking to gain developed market property aim to have an address and office space, exposure. The market’s higher volatility, macro driving demand for commercial rental space drivers, and operational challenges are more aligned as well as commercial building sales. to the profile of an emerging market than that of a Industrial space linked to a theme of growing developed market. consumer spending such as online shopping, which Investors aiming to add global property exposure to is expected to grow by 162% in the next five years, is a their portfolios will do well to include a mix of assets strong long-term trend. Industrial sector investments in exposed to growth across numerous sectors including warehousing, distribution and logistics across the US, commercial office space and industrial logistics and Asia and Europe is a key driver of property returns. warehousing. Yield return expectations for global Eastern Europe has been a popular property listed property are around 4%, with approximately investment target but has limited attractiveness in a 4% to 5% growth in dividends over time.



ld Mutual Investment Group will further strengthen its investment boutique capabilities through the establishment of a South Africanbased Global Equities team; hiring three members of Coronation’s Global Emerging Markets team to set up and manage the Global Equities capability. The new investment offering will complement the Old Mutual Investment Group Global Emerging Markets boutique’s emerging market capabilities. Regarding the hiring of the team, Old Mutual Investment Group Director of Investments, Hywel George says he is thrilled to have investment professionals of their


calibre on board. “The three-person team, Pieter Hundersmarck, David Cook and Kyle Wales, are seasoned investment professionals and have enjoyed great success at Coronation as instrumental members within their Emerging Markets and Global Equity strategies. They joined Coronation during the developmental phase of the business’s Global Emerging Markets capability, and thus have valuable experience in establishing a global equity investment business. “They are all highly regarded within the industry, have notable investment performance track records and bring with them a wealth of experience and skill -

and together are likely to prove invaluable additions to our investment business. “Most importantly, they are hungry to build this key capability into a significant success story and together we are confident it will achieve significant success over the coming years,” George comments. The global equity strategies will form the basis of a suite of global equity and balanced products for distribution both locally and offshore, allowing the business to further build on its current reach and capability as a compelling, leading African asset manager. South African demand for global investment exposure has grown

significantly over the past decade as domestic retail and institutional clients have diversified into offshore markets. This keen appetite for global exposure has been fuelled by a combination of rand weakness, local investors’ desire to diversify their assets and the increase in the amount investors are allowed to invest offshore. George believes that this environment offers significant opportunity for the business and that the addition of an in-house, actively managed fundamental global equity strategy will significantly enhance the current success of the business’s boutique investment capability.

THE GLOBAL MARKET NEVER SLEEPS. NEITHER DO WE. In today’s market, finding the best opportunities takes global perspective. Ours comes from over 650 investment professionals on the ground across more than 25 countries.* Find out more at

* As of 31 March 2017. Investors should seek professional financial advice before making a decision to invest. Investments involve risks. Franklin Templeton Investments SA (PTY) Ltd is an authorised Financial Services Provider. Please refer to our website for more information. Š 2017 Franklin Templeton Investments. All rights reserved.


30 June 2017



efore Donald Trump was elected President of the United States, allegations about his contacts with Russia emerged. The ‘Russian rumours’ haven’t yet stopped. In fact, they’ve grown large enough for presidential impeachment to be put on the table. Russia Matters came to a head when Trump fired the head of the FBI, James Comey. It was then revealed that Comey had written a memo about his meeting with Trump at which, he alleges, Trump tried to force him into dropping an investigation into apparent Trump-Russia connections. To make things worse, it appeared that Trump had allegedly given topsecret information to the Russian ambassador at a White House meeting. Ex-FBI Director, Robert Mueller, has been appointed to head the probe into Trump’s supposed Russia connections. Obviously, investors are concerned. Impeachment Al Green, a Democratic congressman from Texas, released a statement in which he said that Trump was not above the law. “He has committed an impeachable act and must be charged. To do otherwise would cause some Americans to lose respect for, and obedience to, our societal norms. “President Trump has committed an act for which he should be charged by the US House of Representatives. The act is the obstruction of a lawful investigation of the President’s campaign ties to Russian influence in his 2016 Presidential Election. “This charging of the President, is known constitutionally as impeachment.” Green correctly observes that impeachment does not mean that Trump is guilty of any crime. “The House of Representatives cannot find the President guilty of anything. Only the US Senate can do this after a trial.” Political risks Will Trump end up being impeached? Not just yet, says Citi Bank: “We continue to regard impeachment before 2018 Midterm Elections as unlikely.” {VI}

Citi Bank agrees that US political risks are on the rise: “Recent developments in Washington, including the impending public testimony of sacked FBI director James Comey, the appointment of a Special Prosecutor, and controversy over revelations that President Trump shared classified intelligence information with Russia have increased the pressure on the Trump administration and prompted calls from some corners of Washington D.C. for his impeachment. These moves have sparked investor concerns, as well as those of international observers, highlighting the extent to which party control of the levers of government does not necessarily equal party cohesion or the rapid advancement of a policy agenda.” There are several reasons why Citi Bank thinks impeachment could only occur next year. “Although his nationwide approval ratings have fallen, President Trump continues to be popular with his voter base. Although some prominent figures from within the Republican party establishment have voiced concerns about Trump’s leadership as well as called for changes in staffing of the White House, the Republican party establishment continues to remain broadly loyal to the president. “For Republicans, control of the White House and both houses of Congress represents a once-in-a-generation opportunity to pass key items on the party’s agenda, most notably Obamacare repeal, tax reform and de-regulation. The party is unlikely to want to jeoparidise this opportunity unless there is no alternative in our view. Even if the party were under some scenario to agree to impeachment proceedings, and VicePresident Pence were eventually to take over as President, much momentum and credibility would likely be lost in the process.”

While many modern US presidents have seen the appointment of special prosecutors, investigations or the initiation of impeachment proceedings (the IranContra scandal under President Ronald Reagan, Whitewater under President Bill Clinton and more) during their tenure, they continued to govern and see out their terms. Impeachment procedures as drafted by the US Founding Fathers are rather vague, Citi Bank notes. “Crucially, impeachment of a President requires the approval of both houses of Congress.” Impeachment isn’t ruled out completely though as “further investigations or revelations could potentially result in hard evidence of ‘treason…high crimes or misdemeanors’ as stipulated in the US Constitution.” To date no US President has been impeached by his own party, “and given the highly charged partisan environment, we think that evidence of a breach deemed sufficient to trigger impeachment proceedings would have to be very robust. However, if there is a change in the composition of control in Congress post-Midterms and Democrats pick up significant seats, the political calculus could change,” City Bank adds. Investors Instead, its base case is that investors should be prepared for continued headline risks and delays in Trump’s policy agenda, with some policies ultimately de-railed.

“We have previously cautioned that the failure in the first instance to pass ACHA legislation (healthcare reform) and the distractions caused by the ongoing allegations of Russian interference in the US elections were likely to result in delays to aspects of President Trump’s policy agenda, a call which we maintain. Efforts to reform healthcare are likely to resume in earnest this summer, and passage would boost Republican party morale as well as investor sentiment, especially given the potential savings to be applied toward tax cuts. Progress on deregulation remains a bright spot in the administration’s efforts to date, with another key policy objective of North American Free Trade Agreement (NAFTA) re-negotiation expected to be triggered soon.” Citi Bank also notes that immigration reform via Executive Order and infrastructure spending have the potential to be agenda items that could be delayed indefinitely, or derailed. While Republicans have emphasised optimism about pursuing tax reform this year, “we continue to flag the potential that the timetable for tax reform will be pushed out into 2018 as a consequence of the political oxygen for the administration being occupied by other items, as well as due to divides from within the Republican Party.”


30 June 2017

THE VALUE OF A DIVERSIFIED PORTFOLIO MoneyMarketing asked Nadia Van Der Merwe, Business Analyst at Allan Gray, about investing offshore in the current SA economic environment

While market volatility is uncomfortable, it is natural, both in local and offshore markets. It is important to understand this and not panic.

Are you recommending greater offshore exposure due to SA’s cabinet reshuffle and junk status?

The FTSE World Index delivered 22.5% per annum (in rand terms) over the past five years, versus the FTSE/JSE All Share Index (ALSI), which returned around 12.5%. Much of this outperformance has come from rand depreciation; the FTSE World Index’s return in US$ over the period was 9.9%. We believe that investing offshore should form a core part of your investment portfolio. The results certainly seem to be borne out over the past five years. However, we would strongly caution investors against focusing excessively on a relatively short time such as five years.

Have investors, who didn’t increase their offshore exposure over the last few years, suffered a huge opportunity cost? Timing the market is fraught with issues and typically proves to detract from, rather than enhance, investment returns. While investors may have missed out by not being in offshore markets over the last few years, they may miss out more by further delaying investment. We believe offshore investment is an essential long-term asset class within a diversified portfolio. It is more important to initiate investment

Although offshore investment shouldn’t be a rand play, would a further downgrade of SA’s global and local credit ratings by Moody’s lead to large amounts of money flowing out of SA’s capital markets?

The cabinet reshuffle materially increased South Africa’s risks, and the subsequent downgrade of our sovereign credit rating has had a direct impact on foreign holders of South African bonds. Many of these investors are not permitted to hold sub-investment grade bonds and may be required to sell. However, the full impact is still unknown, and other buyers may be prompted to step in. South Africa remains dependent on foreign capital, without which it will be very difficult to achieve the growth rates needed to address the widespread challenges. Irrespective of short-term developments, our long-term outlook is directly related to South Africa’s economic prospects. Abandoning fiscal prudence would likely result in further ratings downgrades and capital flight, and consequently have a negative impact on the rand exchange rate, bond prices and investor confidence. The recent downgrade serves as a reminder of the importance of having a diversified investment portfolio. 95150/E

The recent events have certainly been unnerving. While it is natural to feel uneasy about your investment portfolio during times of heightened uncertainty, we would strongly caution against making investment decisions in response to short-term events, or adjusting your portfolio to suit the prevailing mood. We believe investors should consider investing offshore, not simply because of political or economic risk ‘at home’, but because it is a key tool within the context of a long-term plan to diversify your investment portfolio and protect your local purchasing power. As with all investment decisions, your personal circumstances and risk tolerance should be taken into account when determining your offshore allocation. Once you have decided to invest offshore, it is best to apply this approach consistently, with a long-term investment horizon. SA investors have often flocked to offshore markets in response to rand weakness – this is counterintuitive and often costly as attempts to ‘time’ the rand or the markets can destroy value.

Haven’t offshore returns over the past five years been double the returns of comparative asset classes in SA?

than to worry about timing it perfectly. In addition, consistently allocating a portion of your investments to offshore markets serves to reduce the impact of changes in exchange rates and tends to average out rand volatility.


THE FURTHER YOU TRAVEL, THE MORE OPPORTUNITIES YOU’LL FIND. The leatherback turtle is a record-holding offshore investor. They travel an astonishing 16 000km or more every year in search of a particular kind of jellyfish. It’s a long journey covering more than four times the distance across the continental USA. You see, they’ve known for millions of years something that Allan Gray and Orbis, our global asset management partner, feel very strongly about. That to be a successful investor you have to access opportunities beyond the 1% of the global equity market represented by South Africa. We realise that the choices out there can be overwhelming, so we’ve narrowed down the options to what we think are the most attractive offshore investment opportunities, in the Orbis Global Equity Fund. Needless to say, we’d be happy to invest on behalf of the leatherback turtle any day. For more information call Allan Gray on 0860 000 654 or your financial adviser, or visit



(iv) Artist’s impression.


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

95150-Turtle 155x220.indd 1


5/15/17 1:02 PM


RICHARD ROBINSON Investment Manager, Ashburton Investments



he cyclical sectors, which include consumer cyclicals, basic materials, financial services and energy, have a considerable correlation with different phases of the business cycle. The defensive sectors such as consumer staples, communication services, healthcare and utilities do not. What scares many investors away from the cyclical space is the fear of performance blowouts when the cycle turns, particularly when invested with a ‘buy and hold’ mentality. Cyclical stocks should not be bought on this basis. Instead, you need to identify an active sector strategy that manages the cycle. The energy sector certainly has one clear driver – the price of oil. It also has a range of sub-sectors that react to the price in very different ways. This ranges from high sensitivity typically found in the ‘upstream’ sub-sectors closest to the source of oil production including seismic, drilling, service, exploration and production to relatively low sensitivity ‘downstream’ subsectors such as shipping, pipeline, refining and major oil companies. Taking exposure to a cyclical sector like energy through a passively managed ETF that follows the benchmark is not a suitable option. A portfolio that tracks the benchmark exposes investors to the highest weightings of highly oil price sensitive areas at the top of the cycle, while reducing it at the sector’s lows. Exposure to these ‘upstream’ subsectors hit almost 40% during oil price peaks of 2011 and 2014, while the same subsectors fell to 29% during the energy sector’s lows in 2016. If investors adopted a passive ETF-based approach, they would have been holding low oil price sensitivity at the low points of the cycle and much higher oil price sensitivities at the highs. This is the complete opposite of what is desirable. Highly cyclical sectors should be managed in a very different way to the management of low cyclical sectors. For this reason, investment managers should place the six to twelve month directional forecast of the oil price


at the very core of their methodology. By using subsectors as tools, managers can then either desensitise a portfolio when they believe the oil price is heading lower or increase sensitivity when the oil price is heading higher. The inclusion of such a strategy within an investor’s portfolio allows them to benefit from an actively managed cyclical sector, supported by a dedicated and experienced manager. The energy market is currently entering a very interesting and exciting period. After years of shrinking cash flow and the resulting decimation of capital expenditure on long cycle oil supply projects, which take four to eight years to start production, the market has cleared its excess oil inventories. The energy market is now entering a period when activity has to be extremely strong in order to balance what is increasingly looking like an undersupplied market. We are approaching the time when the market desperately needs oil with a short lead-time. Short-cycle oil, currently being produced from on-shore US basins with a lead-time of approximately six to eight months, can indeed fit that bill. Thanks to some incredibly strong productivity gains over the last five years, short-cycle oil has moved from being one of the most expensive to one of the cheapest sources of oil (outside of OPEC). Particularly in the offshore space such as the North Sea projects, production is contracting in order to balance the market. The US, however, stands to garner much of the market share growth that will be on offer over the next five years. Investors should be looking to the areas that are growing, such as the Permian Basin, which has the capacity to increase supply by 10-25% annually over the near future without creating over supply. Even with strong US activity, time looks to be against the industry and the market is looking undersupplied as we enter the close of the decade. Consequently, an investor looking to benefit from the value that can be found in the energy sector, should look for a portfolio that is holding high oil price sensitivity in order to maximise their returns during this, the strong part of the cycle.

30 June 2017

NEXT US RECESSION ‘NOT IMMINENT’ US economic growth slumped to 0.7% (annualised) in Q1 and other data like US car sales – that were supposed to come to the rescue – decreased in April by 4.7%. Is this perhaps a warning that a recession may be around the corner in the US? The Fed seems intent on hiking interest rates, despite this data. How should SA offshore investors see US equities at present? MoneyMarketing spoke to John Stopford, Head of Multi-Asset Income at Investec Asset Management


he US economy started the year on a weak note, but we doubt this is anything more than noise, and the next recession is not imminent. Q1 US GDP growth was just 0.7% at a seasonally adjusted annual rate (saar). Most coincident and leading indicators suggest, however, that the economy is doing reasonably well. GDP is a noisy series and the current estimate for Q2 from the Atlanta Federal Reserve is 3.6%. There has been a bit of a pattern of weak Q1 growth in recent years, which suggests that the statisticians have struggled to adjust for seasonal patterns appropriately. Despite Q1 GDP weakness, the US created over 200 000 jobs a month and the unemployment rate fell to a low for this cycle of just 4.4%. Equity earnings also did better than expected. Areas of consumer borrowing are certainly beginning to show some signs of stress, and car sales have probably peaked for this cycle, but this is typical of a maturing economy. Many late cycle warning signs, however, are missing. For example, US recessions have tended to be proceeded by an inverted Treasury yield curve (longer-dated bonds yielding less than shorterdated bonds) with a lead of 1-2 years. So far, the curve remains reasonably relaxed. Similarly, recessions have generally seen banks tighten credit conditions about nine months ahead, but banks are still loosening lending standards. Finally, fast moving data suggest the risk of a recession in the next six months is very low. Although unemployment is now low by historical standards,

soft wage growth and low inflation points to there still being spare capacity available for growth, and tightening by the Federal Reserve can be gradual. Furthermore, President Trump still wants to cut taxes and regulation, although his ability to implement policy is uncertain. Our best guess is that the next recession is at least a year away and probably further. Equity markets historically only finally peak about six months before the onset of a recession, so this bull market may well have further to run. The US equity market is relatively expensive, but improving earnings help to mitigate this, and valuations are not sufficiently elevated to prevent further market gains. Value measures tend to work best in helping to estimate long-run stock market return potential, and are not a very good indicator of returns over the shorter-term. We believe that stock selection is more important in this kind of environment. There are plenty of good US companies in attractive sectors, which can deliver decent returns. Areas we favour include more cyclical parts of the market, such as tech and industrials. We are more cautious towards defensive interest rate sensitive stocks and more expensive names within the consumer staples sector.

John Stopford, Head of MultiAsset Income, Investec Asset Management

30 June 2017



Private individuals in South Africa have traditionally been poorly serviced, paying high foreign exchange premiums and costs to move money out of the country,” says Exchange4free, a South African owned global foreign exchange, money transfer and payments company. (It currently services over 50 000 private and corporate clients in over 40 countries worldwide). Exchange4free is also an authorised Foreign Exchange Broker – or Intermediary – approved by the South African Reserve Bank. The company services the needs of private clients investing offshore, emigrating, buying property abroad or sending regular money transfers overseas. Exchange4free started in London in 2004 and has since traded in excess of $10 billion globally via offices in the UK, South Africa, Australia, Switzerland, Canada and Israel. The company says it has delivered an international standard forex service for South Africans, “by developing a simple, transparent, highly competitive and user-friendly solution without investors ever having to leave the comfort of their homes or offices –while delivering an unbeatable service and price offering.” It adds that the industry has typically been characterised by slow, unresponsive and unprofessional service, low levels of product and exchange control knowledge and very high costs (when considering hidden forex margins and

international transfer fees). Now, South Africans looking to utilise their R10 million foreign investment or their R1 million discretionary allowance, can do so by using Exchange4free, helping them save both time and money. Exchange4free offers a solution to South African private clients investing offshore including the following: • Bank beating forex rates • No Swift fees or hidden costs • FREE SARS tax clearances in 2 - 5 days • Unbeatable service via a simple Online Application Form.

Alternatively, being a global foreign exchange company, if investors have funds that need to be transferred into South Africa from abroad, or to and from almost any country worldwide, then Exchange4free can deliver an international solution ‘at unbeatable rates with no fees’. Visit for more information or call Matt Lawson on 011 453 7818 for any assistance. Exchange4free is an approved Foreign Exchange Broker or Intermediary by the South African Reserve Bank and is an authorised Financial Services Provider (FSP 47434).

The company says it also works and partners with leading financial advisers, investment managers, offshore fund platforms, estate agents and emigration firms to offer a value added service and better deal to customers. In addition, Exchange4free offers a formal emigration service as well as forex services to non-residents and clients wanting to apply to the Reserve Bank to exceed their annual limits. Applications can be made online in less than two minutes.



30 June 2017

LILIANE BARNARD CEO & Portfolio Manager, Metope Investment Managers



he SA listed real estate sector is increasingly becoming globalised as local property companies invest in direct property offshore and international property companies opt for dual listings on the Johannesburg Securities Exchange (JSE). For SA investors looking for exposure to property outside of the country, the JSE is a good place to start. Of the 20 companies included in the SAPY (South African Property Index), 18 offer some exposure to offshore property markets, with four being foreign companies inwardly listed. In the broader property sector, outside of the SAPY index, there are 16 inwardly listed foreign property companies. Investing locally into global property companies offers a cheaper and more liquid means of gaining international property exposure compared to investing offshore into physical property, and - importantly - SA investors do not need to tap into their offshore allowances. During 2016 and 2017, income-yielding SA stocks were the top performers within the property sector as local bond yields strengthened and capital flowed into emerging markets. Conversely, low-yielding offshore stocks posted a poor performance over this period as the stronger rand wiped out growth in distributions in local currency and impacted valuations in rand terms. However, this reversed somewhat following the latest cabinet reshuffle and the downgrading of SA’s sovereign debt, resulting in the rand depreciating, and expectations of muted inflation and lower interest rates being reviewed. The SAPY returned 1.9% year-to-date up to 30 April 2017 (down from a year-to-date return of 4.2% as at 24 March before the cabinet reshuffle) as local and global concerns caused increased volatility. Currently the SAPY is trading at a forward distribution yield of 7.0%, and we expect to see 8%-9% growth in distributions over the next 12 months. Internationally, UK-focused real estate funds performed particularly poorly towards the end of last year in the wake of Brexit, but London capital


values appear to have held up so far this year following several transactions of trophy assets, such as the Cheesegrater building. Capitalisation rates continue to remain low as the weaker Sterling supports increased demand for UK property from overseas buyers. Despite this, transaction volumes have remained low due to the current economic uncertainty. Emerging economies within the EU, such as Poland and Romania, are poised to benefit from the post-Brexit fallout. These economies are largely driven by EU funding, the growth in Business Process Outsourcing operations, the proximity to Germany and a cheaper, well educated workforce. Nepi, Rockcastle, Echo Polska, GTC, MAS, Growthpoint and Redefine are among the SA-listed stocks operating in the Central Eastern European market. A key benefit of investing in these JSE-listed property companies is the geographic and multi-currency diversification that they bring to investors’ portfolios. Given the current weak economic environment and the heightened uncertainty globally, we believe in investing in listed property companies with strong cash flows. Distribution income increases annually and provides investors with an attractive inflation-beating and growing income stream, as well as a partial rand hedge due to the foreign earnings component. We, at Metope, focus on investing in listed property companies that will deliver superior growth in income within this uncertain environment. Any depreciation in the rand will bolster dividends from foreign investments but the underlying income generation fundamentals must be supported even in periods of currency stability. We believe that in the short term, total return performance will be driven by the quality of the assets acquired into the portfolio and the economic growth in the markets in which companies operate. In the long term, such outperformance will be determined by the investment strategies adopted by the most competent of companies’ management teams.

The International Investment Portfolio Personalised Share Portfolio with exposure to the world’s leading companies Why invest? • Tax efficient • Choice of two managed portfolios • Minimum initial investment of £25,000 • Cost effective: a maximum management fee of 0.75% pa (sliding scale applies)

Invest for Income Contact our Communication Centre on 0800 336 555 or visit


30 June 2017

SONJA SAUNDERSON Chief Investment Officer, Momentum Investments


t’s a difficult and disturbing world for retirement fund trustees and their advisers at the moment – locally and globally. In a time of ratings downgrades (to ‘junk’ status), the Trump presidency and other events, it’s very easy to be overwhelmed. A sense of panic can lead to poor, fear-based and shortterm decisions, which could have disastrous long-term effects on the financial wellness of retirement funds and their contributing members. It’s precisely in turbulent times like these that the value of outcomebased investing is even more evident. Outcome-based investing ensures investments made with an eye on what matters offer a reassuring journey to a comfortable and secure retirement for members. The concepts of outcome-based investing (also often referred to as goal-based investing and liabilitydriven investing) have been around for a while. Momentum Investments has a long track record to really deliver on


Turbulent times should not mean turbulent investments

the true essence of them, which means and the various capabilities to align a complete overhaul of the way the with its investment philosophy and company has integrated investment portfolio construction approach. decision making with client dialogue This includes having passive and and the structure of its investment smart beta, fixed interest and business, where the retirement fund’s liability-driven investments as well as goal is the only benchmark that matters. alternative asset classes like private Too much current investor equity, property, commodities, hedge behaviour is proven funds and others. to be driven by There is also a belief counter-productive and willingness OUTCOME-BASED behavioural biases, to partner with INVESTING ENSURES other investment such as fear and greed, with the focus providers, which INVESTMENTS ARE on short-term and complement MADE WITH AN EYE can peer investment and enhance its ON WHAT MATTERS approach to harness returns, as opposed to long-term drivers diversification that should create benefits. Momentum successful outcomes for retirement Investments’ diversified capabilities fund members. The industry, in turn, are needed to focus on the investment is product-driven, as opposed to outcome and risk budget sought by solution-driven, and this often leads the investor, and then deliver on that to a vicious cycle of sub-optimal in a seamless and re-assuring way in outcomes for members. an optimal portfolio. Momentum Investments has reOutcome-based investing means organised its investment business an emphasis on growth with control,

INSIDER CHRONICLES ADRIAN MEAGER General Manager of Asset Management, Warwick Wealth

What impact should we expect on financial markets now that South Africa’s local and foreign currency debt ratings have been downgraded? Many pundits have suggested that the immediate impact of a credit downgrade would be a flight of capital, a spike in bond yields, rapid currency depreciation and a fall in equity markets. However, an historical analysis of other emerging markets that have suffered a downgrade from investment to sub-investment grade reflects something different. South Korea, Brazil, Russia, Greece and Uruguay, are all examples of emerging market economies that have been downgraded from investment to sub-investment grade. Examining their bond yields, currencies and equity markets in the 12 months before and after the downgrade makes for interesting reading. The general trend in ten-year bond yields in these countries was for yields to expand leading up to and immediately after the downgrade. Yields generally started to recover, however, only about six months after the downgrade. In Russia, ten-year bond yields were 6% lower a year before the downgrade, yet rallied by 4% in the following 12-month period. The only exceptions are Greece and Uruguay,

something that can be achieved through crafted solutions that are diversified across multiple asset classes, investment strategies and mandates, matching the specific objectives that have been set. This does not mean an increase in costs. Momentum Investments can deliver choice and appropriate solutions in a cost-efficient manner because of its model of evaluating investment opportunities and their merits on the basis of after-cost valueadd to clients. This also is not a cover for poor investment returns. It resets the adequacy of returns solely in the context of the liability or required goal set at the beginning, without being distracted along the journey. Trustees and their advisers need to keep a calm, focused view on the retirement needs of their members, and should resist trying to time the markets. That, together with diversification, is the very essence of outcome-based investing.

What next for South Africa? where yields continued to rise as these two emerging markets suffered a series of downgrades over a relatively short period. As governments and central banks began to undo the poor policies leading to the downgrades, asset prices in those economies started to improve. We feel that there is a reasonably good chance that South African assets post the downgrade, will perform similarly. The real effective exchange rates of the currencies of these countries tell a similar story. There are examples where currencies have done poorly, Greece being one, but overall, the average currency on a real effective exchange rate basis increased relative to the time of the downgrade, with South Korea’s currency strengthening by 40%. South Korea set the standard for dealing with a downgrade, having managed to regain investment grade status within a year. This demonstrates that if correct policies are applied, countries’ investment ratings can recover relatively quickly. Yet even some countries, whose policy response was not optimal, such as Brazil, rallied in real currency terms. The effect of a downgrade on equity markets in these countries has been more mixed, with significant losses being rare.

The average equity markets performance of the economies approaching sub-investment grade tend to be modest bear markets that then move mostly sideways for the next 12 months. This suggests that a downgrade will probably not be profoundly negative for South African financial markets in the short term. What will matter most is the longerterm policy response and how South Africa goes about getting back to investment grade status. Making radical changes to investment portfolios during times of uncertainty is likely to lead to wealth destruction. History has shown that despite regular shocks in financial markets, calmly sticking to well-constructed financial plans and staying invested through the short-term volatility provides the optimal wealth creation.



ZAIN WILSON Old Mutual Balanced Fund Analyst, Old Mutual Investment Group


30 June 2017

Markets saw junk status coming

he proverbial fat lady has finally sung, with ratings agencies Standard & Poor’s (S&P) and Fitch downgrading South Africa’s investment grade rating. Although both agencies cited risks to governance and a change in policy direction as reasons for the downgrade, a weak global commodity cycle and a lack of a domestic growth driver mostly explain South Africa’s fall into ‘junk’ status. Weak growth, relative to both advanced and emerging economies, is a commonly cited picture for South Africa’s dismal relative performance. However, more instructive is the comparison against a basket of commodity-producing countries. Over the period from 2000 to 2008, the relationship between South Africa and commodity-producing peers was remarkably strong, explaining much of our robust performance against both emerging and advanced economies. While the trend has remained post the global financial crisis, SA’s growth has dropped lower than other commodity producers. This suggests that a weak global cycle is not the only explanation for our recent slide. The surprise is that the decline does not come from a lack of investment or poor export performance, but rather from weak private sector consumption. Although fragile business confidence, electricity constraints and poor labour relations have grabbed the headlines, gross investment and exports have largely moved in line with the commodity peer group. However, we suffered from a deleveraging by our household sector on top of a weak commodity cycle. While other commodity producers effectively shifted some of the growth burden to households, this has not been the case for us. Despite record low interest rates, SA household credit has been contracting in real terms for much of the last seven years. While National Treasury’s counter-cyclical fiscal response to the crisis was similar in magnitude to its commodity peers, the resultant recovery has been weaker, creating a drag on Government’s tax revenues and with it other key fiscal metrics. This is not to say that there hasn’t been a degree of selfinflicted damage, evidenced in the mismanagement of our state-owned enterprises, ballooning public sector wages, a rising interest bill and an inflexible labour market.

No need to panic (yet) Following the downgrade, the immediate concern is forced selling by foreign bond holders. The reason is that ratings actions can trigger the exclusion of a country from key global and emerging bond indices against which a large portion of international investors are benchmarked. Those managers constrained to tracking the index would be forced to liquidate their bond holdings. Here, it is the local currency index that matters, as only a small portion of Government’s outstanding debt is denominated in foreign currency. Should index exclusion materialise, the numbers are substantial, with a best guess of forced selling being roughly a third of total foreign holdings of South African bonds, 10% of outstanding government debt or equivalent to National Treasury’s budgeted funding requirement for the entire 2017/18 financial year! Not only would this result in a material upward shift in bond yields and, consequently, an increased cost of government funding, but a liquidation of that magnitude would also have a material impact on the currency. A weaker currency and a squeeze on government spending would then have repercussions on growth, inflation, monetary policy and, with it, the cost of borrowing. Fortunately, this ‘all fall down’ scenario is not currently our base case. Even when adjusting for a likely single-notch downgrade by Moody’s from Baa2 to Baa3, South Africa maintains a single-notch buffer against the watermark for exclusion from the two larger indices. However, margins are quite thin. Any shock to either growth or our fiscal metrics – be it external (via a global recession) or self-inflicted (the cost of nuclear, for instance) – would quickly put us firmly on the path of index exclusion. In the interim, the risk of a slow bleed remains. Both National Treasury and South Africa, in aggregate, continue to be net borrowers, with Government forecast to run budget deficits over the Medium-Term Expenditure Framework horizon, while our external borrowing requirement remains. This means that the stability of bond yields and the exchange rate would require either: • Foreigners to continue being active buyers of both the rand and domestic bonds • Our funding requirement to continue on an adjustment path via better growth or active ‘belt tightening’, or • Most likely, some combination of the two. Recent currency weakness, although moderate, has at the very least delayed the possibility of rate cuts, as the South African Reserve Bank (SARB) remains cautious over the future prospects of the rand and the implications for inflation.

At a time when fiscal policy has tightened, the consumer now has a higher tax bill, but no alleviation from falling interest rates. Some support should materialise from inflation drifting lower, for now. However, household balance sheets remain vulnerable and are unlikely to be resilient in the face of interest rate hikes – should the SARB be forced to react to a substantially weaker currency. Why politics matter On the fiscal front, a government that is willing and able to act swiftly by reining in fiscal metrics (via raising taxes and/or curbing expenditure) without impeding growth, can minimise the cost and extent of a fall into sub-investment grade status. Here, smaller and shrinking is better – indicative of a public sector that has the flexibility and tools to act quickly and effectively in response to a downgrade. South Africa scores poorly. Government is large and growing as a percentage of GDP relative to our peers, as are the public sector wage and interest bills − crowding out other spending. The tax burden is also relatively high, limiting the ability to continue expanding the revenue base without consequence. SA’s Government continues to be reliant on revenue generation from the economy to balance its books. When global growth and, thus, exports are firing, domestic vulnerabilities are easily papered over. However, should we move to a less supportive global environment, policymakers would once again need to act swiftly to keep the economy on a stable trajectory. As much of the capacity to act has been absorbed in response to previous crises, the reliance on clear and prudent policy implementation has increased. This is true for instilling confidence and certainty in business to facilitate investment and growth, but also in maintaining credibility in Government’s belt tightening to reduce the cost of and reliance on funding for that growth. How does one invest in times like these? South Africa is currently stuck between a beneficial global environment and a domestic economy constrained by a consumer under pressure, lack of policy flexibility and weak confidence. In addition, an uncertain political environment means that the implications for growth, the currency and bonds are material. At times like this, we take our cue from valuations of assets exposed to either a ‘good’ or ‘bad’ path, reducing risk in the portfolio. We maintain a relatively neutral position in bonds, given their attractive yields in both a global context and historically, but balance this with a meaningful offshore exposure that is benefiting from the supportive global environment. Within our equity holdings, we remain diversified, with exposure to companies either with self-help themes or with strong growth drivers that are more likely to endure. Any extra cash in our portfolios allows us to tactically take advantage of tangible opportunities that emerge − as we expect the market to continually overplay signals in either direction during this time of uncertainty.

LB 114449L/MM/E

I’M NOT JUST A FUND MANAGER, I’M A FELLOW INVESTOR. Graham Tucker Fund Manager MacroSolutions

We believe that when you are personally invested in something, you are even more driven to make it succeed. That’s why Graham Tucker invests his own money alongside yours. Graham manages the Old Mutual Balanced Fund, which has delivered a return of 6.5% above inflation since inception. What’s more, MacroSolutions is also one of SA’s best Asset Allocators.* But this is more than just Graham’s success, it’s yours too. Invest where the fund managers invest by contacting an Old Mutual Financial Adviser or your Broker, call 0860 INVEST (468378) or visit

Inception date: 28 February 1994. Old Mutual Investment Group (Pty) Limited (Reg No 1993/003023/07) is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers ( to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Unit Trust Managers (RF) (Pty) Ltd is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. The fund fees and costs that we charge for managing your investment are accessible on the relevant fund’s Minimum Disclosure Document (MDD) or table of fees and charges, both available on our public website, or from our contact centre. The Net Asset Value to Net Asset Value figures are used for the performance calculations. The performance quoted is for a lump sum investment and in respect of the Old Mutual Balanced Fund. The performance includes income distributions prior to the deduction of taxes and distributions are reinvested on the ex-dividend date. Actual performance may differ as a result of actual initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Past performance is not a guide to future performance. Annualised returns are the weighted average compound growth rate over the performance period measured. The actual highest, average and lowest 12-month return figures since inception to 31 March 2017 are 45.5% (highest), 13.6% (average) and -23.2% (lowest). The fund was launched on 01/03/1994. Morningstar and Old Mutual Investment Group calculated the performance of the fund as at 31 March 2017. Old Mutual is a member of the Association for Savings & Investment South Africa (ASISA). *Rated Best SA Asset Allocator by BNP Paribas, 2014.




30 June 2017


Hold on to your life cover


etting go of life cover, even if you are teetering on the brink of your financial limits, is likely to be a huge mistake with dire financial consequences. This is according to the Association for Savings and Investment South Africa (ASISA). Hennie de Villiers, Deputy Chair of the ASISA Life and Risk Board Committee, describes life cover as “your most valuable financial asset, which can become impossible to replace as you grow older.” “If you are struggling to make ends meet, the temptation to let go of your life cover can be overwhelming. But before you make this irreversible mistake, weigh up the expense of your monthly premium against the financial impact the loss of your income could have on your family.”   De Villiers notes that according to actuarial models, as many as 383 families are expected to lose a breadwinner every day in South Africa, demonstrating that the unexpected can and does happen all too often. “Without the support of life insurance, the reality is that your family would then either need to find additional income or be forced to drastically cut back on their living expenses.” For your children, this may also mean attending more affordable schooling, and could impact their options for further education or leave them heavily dependent on student loans. De Villiers adds that if you are planning to cancel your life insurance now and reapply again later, you should remember that your premiums are likely to be substantially more expensive. You may also be uninsurable or face serious exclusions.  “Age is an important factor in determining your life insurance premiums, and life cover is generally much cheaper when you are younger and healthier.” Alternative solutions for dealing with financial difficulties If you are in financial difficulty and are considering letting go of your life cover, De Villiers says there are a number of alternative solutions that you should first consider: • Reducing your monthly expenses – Critically evaluate all your monthly expenses, and first cut back your spending on non-essential expenses such as your satellite television subscription. Be realistic about your wants versus needs. • Renegotiating your debts – You could approach your bank and creditors to negotiate the terms of your debt repayments, as your creditors may be willing to accept smaller monthly repayments over a longer period of time. You could also approach a debt consolidation agency to help you package your debt and deal with your creditors, but be sure to choose a reputable agency and consider the fees charged carefully before signing up. You can find more information on registered debt counsellors on the National Credit Regulator’s website.   • Pausing your savings – You could pause your contributions to a unit trust portfolio, or take

a ‘payment holiday’ from your endowment policies and retirement annuities. If you have a significant amount of expensive short-term debt on credit cards and store accounts, you could then channel these funds into repaying your debt more quickly. However, stop your savings for short and medium-term goals, such as a holiday or purchasing a house, before you consider pausing vital long-term savings towards goals such as your retirement. Streamlining your short-term insurance – Short-term insurance on your home and vehicle is important, but you could reconsider whether you need comprehensive all-risk insurance that may include your jewellery and mobile phone for instance. You could also reduce your add-ons such as insurance for your car sound system.  Examining your health and life insurance policies – If you need to further reduce your health and life insurance premiums, you should try to prioritise your insurance in the order of what is most likely to happen and what can have the most significant impact on your family’s financial wellbeing. It is important to take account of your own health and family history in making these choices, preferably with the assistance of your financial adviser. Negotiating your premium payment pattern – If you recently purchased level premium life cover, you could request to change to an escalating premium pattern where your initial premiums will be lower and increase over time. This would enable you to keep the same amount of cover while giving you some short-term financial relief. In some instances, you may be asked to undergo medical underwriting before the insurer is willing to make these changes to prevent antiselection, whereby a client who is diagnosed with a terminal illness switches to an increasing pattern to save premiums until death. Reducing your life cover – As a last resort, you could consider reducing your life cover amount in order to reduce your monthly premiums. You should be aware, however, that the effectiveness of this solution will depend on when you initially purchased your life cover, as your age and health may impact your new premiums.

De Villiers emphasises, however, that the best approach to dealing with financial trouble is to acknowledge that you need help and consult a professional financial adviser. “An adviser will be able to examine your financial situation objectively and guide you on making the best decisions appropriate to your individual needs.”

Hennie de Villiers, Deputy Chair, ASISA Life and Risk Board Committee


What the new facility being built for Zulu King Goodwill Zwelithini could cost, according to a report seen by SA’s Sunday Times. The amount is about eight times more than the R129m approved for the first phase of the project.


The value of shares Shoprite must buy from former CEO, Whitey Basson. This is according to a 2003 employment contract that obliges the company to repurchase shares from Basson.

£400 000

The highest ever penalty from the UK Information Commissioner’s Office. It was issued to Keurboom Communications after the telecoms firm made 100 million nuisance calls.


The size of the Church of England’s multi-billion investment fund that scored a return of over 17% last year. The fund is managed by the Church Commissioners for England body.

$100 000

The payout an American woman received after she spilt coffee over herself at a Starbucks in Florida and suffered first and second degree burns.


The amount New York City made from fine payouts last year. Total fines were up by nearly 4%, with officials handing out nearly 700 000 quality of life fines that included littering and noise pollution. Parking tickets accounted for 55% of all fines, while fines against restaurants and small businesses decreased.


Whether they’re perfect

Or perfectly imperfect

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life • disability • critical illness • cancer Hollard Life Assurance Company Limited (Reg.No. 1993/001405/06) is a registered Long Term Insurer and an Authorised Financial Services Provider.




30 June 2017

Global need for AllLife’s products South Africa-based insurtech leader AllLife Group recently announced a landmark agreement with Royal London, the UK’s largest mutual life, pensions and investment company. This will transform the life of the 4.5 million people in the UK living with diabetes. MoneyMarketing spoke to AllLife’s CEO, Ross Beerman How difficult is it, presently, improve your quality of life and your life for diabetics to obtain life expectancy. When we were looking to insurance in the UK? expand our offering to other underserved As with most life insurance markets, segments of the market, diabetes was a people living with diabetes in the UK natural choice. With diet, exercise and have long and mostly unsatisfactory medication you can significantly decrease sales processes with their insurers. your risk of diabetes related conditions. Extensive testing in the underwriting We help clients by empowering them stage causes a delay on when consumers with the knowledge on how to live can get cover, (on average it takes about healthy lives, this includes monitoring six weeks for people to receive a quote). their results and alerting them when AllLife’s Kalibre robo-underwriting further intervention is required. and sales platform revolutionises the How is AllLife’s SA process of buying life business performing, ALL PEOPLE insurance for people given the current LIVING WITH living with type 1 economic situation in DIABETES HAVE the country and type 2 diabetes by improving the The underserved markets in THE RIGHT TO time taken to accept South Africa continue to look EASILY ACCESS for the support and insurance an application from weeks to less than an that AllLife can offer LIFE COVER hour – dramatically them. With our expertise, changing the customer experience. As an continuous underwriting and passion indication of success, the first policy that for the market, we are able to offer an a Royal London client completed took affordable product to clients in largely 14 minutes, a dramatic change from the uncompleted market segments. The expected six weeks. current economic climate means that our clients are stretched and this does mean Given that diabetes is a worldthat there is a tendency for clients to look wide problem, will you be to smaller, more affordable premiums. taking this product to other countries besides the UK? I’m sure that many people in SA There is a need globally for our don’t know that there is a link product set that is being highlighted between AllLife and Warren by our interactions with life insurance Buffet’s Berkshire Hathaway. companies around the world. In addition, Could you please explain this link? we believe that all people living with We have been supported by Gen Re diabetes have the right to easily access (part of Berkshire Hathaway) for more life cover, especially as it also, on average, than a decade in South Africa and, more increases life expectancy and quality recently, globally, with our roll out of of life. We are looking at other market Kalibre and the diabetic offering. In opportunities both locally and globally. addition to reinsuring our products in South Africa and globally, we continue Part of this product is to work with them on innovation in new intervention. Do you find that markets and across new products. intervening in people’s health issues and interacting with them assists them in staying healthier? When we started AllLife, we were able to offer our product to people living with HIV because with close health management, HIV is a chronic manageable disease. By monitoring your health, visiting your doctor regularly and Ross Beerman, following your regime, you can greatly CEO AllLife

Covering yourself for cancer only The World Health Organisation is predicting that the number of new cancer cases is expected to rise by about 70% over the next two decades. On the other hand, the increase in the survival rate of people who have been diagnosed with cancer brings a glimmer of hope. Karen Bongers, Product Development Actuary at Sanlam Personal Finance, says this – however – means that more people will have to deal with the financial costs of surviving cancer. Benefits covering cancer only, as the one recently launched by Sanlam, will therefore add value to consumers. “Currently, more than 60% of severe illness claims admitted by the life insurance industry in any year are solely as a result of cancer. This is why Sanlam has launched cancer-only benefits. We want to enable people to directly address what concerns them most. We’ve seen that people are generally more concerned about the risk of cancer than the risk of any other disease, and when you look at these new forecasts, you understand why,” says Bongers. The increased exposure to knowledge and medical research makes people aware of their vulnerability to certain illnesses. More and more people are therefore in search of tailored benefits that will address illnesses they are most concerned about. Bongers says many people would like to boost their cover for cancer but up until now, they could only do so by increasing the sum assured of their comprehensive critical illness benefits, which cover cancer as well as other illnesses. “A cancer-only benefit is also an alternative for people who are not able to increase or acquire comprehensive critical illness cover due to other medical reasons. And for those with affordability concerns, cancer-only benefits provide a means to construct a more affordable overall package by combining comprehensive and cancer-only benefits.” The Cancer benefit is part of Sanlam’s more affordable Impact range of benefits. Bongers explains that, unlike competitor tiered benefits that pay according to the stage of a cancer, the Sanlam benefit recognises that not all cancers are the same. “For instance, while it would be suitable to pay 25% for stage 1 skin cancer, paying 25% for stage 1 pancreatic cancer will fall short of properly covering clients. As a result, the Impact range will pay 100% of the insured amount from stage 1 for specified aggressive cancers. Sanlam considered the ‘impact’ of different cancers in order to make sure that when consumers are given more affordable options, they remain properly covered,” she says A Cancer Plus benefit, at a higher monthly premium, is also available to provide maximum payouts.


1 in 4 South Africans is affected by cancer. How many of those are your clients? Many of us think cancer is something that won’t happen to us. But it affects a staggering 25% of people in South Africa. Which means if not you, it will happen to your clients. At Sanlam we’re in the business of safeguarding futures. Which is why we’re proud to introduce our all-new Sanlam Cancer Benefit, designed to give your clients and their loved ones proper cancer cover. It pays 100% for listed aggressive cancers from Stage 1 and provides comprehensive cover for early cancers. Your clients can get cover up to R6 million subject to financial underwriting. Speak to us about our new Sanlam Cancer Benefit. Designed to give your clients comprehensive cancer cover and peace of mind. ‘One in four South Africans is affected by cancer through diagnosis of family, friends or self.’ Statistic provided by the Cancer Association of South Africa (CANSA). Sanlam is a Licensed Financial Services Provider.




30 June 2017

GERHARD VAN EMMENIS Acting Principal Officer, Bonitas Medical Fund

The International Diabetes Foundation predicts that by the year 2040, over 642 million people worldwide will be diagnosed with the disease. Gerhard Van Emmenis, Acting Principal Officer of Bonitas Medical Fund, explains why a proactive, holistic approach to diabetes management is essential.

Chronic disease fiscal fallout

Chronic conditions are the leading causes of death and disability globally, putting an enormous burden on most healthcare systems. Prevention and early intervention are a big step towards the ultimate aim of making populations healthier through improved lifestyles and increased compliance with care regimens. Over the past few years, the Council for Medical Schemes cited an increased prevalence of chronic conditions, and diabetes in particular, as a key contributor to a rising disease burden and escalating healthcare costs. To help offset this growing disease burden and proactively empower patients with diabetes to take control of their health, Bonitas Medical Fund


Holistic treatment and management of diabetes critical

together with Medscheme, has developed an integrated, holistic programme – based on the specific needs of diabetic members.

Diabetic co-morbidities – a higher risk

Individuals with diabetes often have other co-morbidities such as high blood pressure and heart disease. “Over 80% of our 46 000 diabetic members have associated chronic conditions,” confirms Van Emmenis. This greatly increases the risk of diabetics developing complications such as kidney, nerve or eye problems. A key feature of the diabetes Bonitas programme is that it manages an individual’s unique mix of disease and lifestyle factors.

Co-ordinated care

“To ensure continuity and coordination of care, we recommend that members with diabetes consult with a dedicated doctor that is skilled in all elements of diabetes care,” Van Emmenis explains. “We conduct GP upskilling sessions, whereby we equip doctors with the latest medical developments and best

MATTHEW DONEN Senior Private Equity Analyst, Riscura

obile technology is rapidly transforming the way business is being conducted in Africa, particularly in the healthcare industry, because of greater internet connectivity. With patients in Africa having to wait in long queues, travel vast distances or wait weeks for a visit from a healthcare provider, e-health innovations have the potential to change the lives of millions of people. However, it’s not simply a case of copying e-health providers in developed countries where this model has worked well. The unique circumstances, such as having to travel from remote areas to access healthcare, are resulting in African companies, who understand these challenges best, leading the way in rapidly changing the continent. Prior to the start of the World Economic Forum on Africa 2017 held last month, global leaders convened to innovatively address challenges faced by Africa’s healthcare sector. Delivering the keynote address, President of the Republic of Mauritius and renowned biodiversity scientist, Ameenah Gurib-Fakim said: “Africa urgently needs science, technology, and innovation to secure a prosperous, healthy, peaceful, and sustainable future.” A good example of innovation in healthcare is the recently-launched ConnectMed, an

clinical protocols so that they are able to treat complications and refer patients for secondary care appropriately.” By connecting doctors and patients electronically, via an electronic medical record, communication is improved and doctors are kept informed of all health related events and medical scheme benefits linked to their individual patients. The patient is empowered as they have access to information and can actively participate in their care. Members have access to a dedicated health coach to help them navigate the healthcare system. “Our integrated approach includes diabetes education, monitoring adherence to treatment (both medicine and other care), screening for complications and access to healthcare professionals who can assist with dietary advice and exercise. Doctors are able to support this tailoring with a specific, individualised care plan for each of their patients.”

Medication delivery

There is a move globally to leverage off the successes of HIV/AIDS programmes and apply these to

other non-communicable diseases. “One of our keys successes has been the use of a dedicated courier pharmacy, Pharmacy Direct, in achieving reduced viral load in patients with HIV/AIDS, as delivering antiretroviral therapy by courier has significantly improved adherence to treatment. We aim to replicate this for diabetes patients by offering courier delivery of diabetes medication and medical supplies such as needles and testing strips,” he says. “In addition, because Pharmacy Direct is a designated service provider, we are able to ensure that members are not faced with additional co-payments.”

Containing the risk

“The way forward is an increased focus on prevention, lifestyle changes, coordination of care by doctors and the utilisation of evidence-based disease management interventions,” says Van Emmenis. Consequently, Bonitas uses an innovative Emerging Risk predictive model and screening algorithms to identify pre-diabetics and members likely to develop complications and other serious conditions.

African healthcare ripe for disruption online medical service in Kenya which is taking e-health services to a new level. ConnectMed allows patients to access doctors via a video link (such as SKYPE) on their computers, tablets or smartphones and obtain prescriptions, sick-notes, and referrals. For patients without internet access, the company will be rolling out physical stations with computers pharmacies and cyber cafés.  Initially, due to limited smartphone penetration and internet connectivity, e-startups in Africa focused on healthcare booking platforms and integrated health solutions that refer patients to a network of doctors. This focus was the starting point of transforming Africa’s healthcare industry into a more techfriendly sector. A common trend in Africa has been to follow the blueprint of companies in developed markets such as Babylon Heath, a company in the UK that offers a digital healthcare app via an artificial intelligence (AI) powered chatbot. However, platforms working in developed markets don’t know about African disease. This has seen the launch of start-ups such as Kangpe Health, a mobile app started by a doctor in Nigeria, which provides a platform for patients to type in medical questions. Medical staff then provide answers to the respective questions or refer the customer to a doctor. Other start-ups such as MedAfrica in

Kenya, Matibabu in Uganda and SA’s Hello Doctor, all provide similar question and answer services on the continent. The continent’s internet connectivity is fast catching up with that of its developed counterparts allowing for broader innovations like ConnectMed. Indicative of this was the finding in a recent report that seven of the 10 fastest growing internet populations are in Africa, allowing the region to leapfrog a generation and reshape economies on the continent. This growth has not gone unnoticed by investors, as indicated by the $366.8m record amount of investment raised by African start-ups during 2016. Recent expansion into Africa by global giants such as Google, Facebook, IBM, Uber and Netflix, all of whom have extended new product offerings to African consumers, is likely to result in increased internet access in the region. In order to reach the maximum benefit from their products, many of these companies are investing in African infrastructure in order to improve internet connectivity and create greater access to users on the continent. With 40% of Sub-Saharan Africa’s population being under the age of 15, according to data from the World Bank, this generation is embracing the advances in technology making the African healthcare sector ripe for disruption.








BONITAS MEDICAL FUND l WWW.BONITAS.CO.ZA l 0860 002 108 0860 002 108 l






30 June 2017


Charging Bull versus Fearless Girl

John Kane-Berman is uniquely qualified to look back over the enormous political and social changes that have taken place during his lifetime in this fractious country. In his career as student leader, Rhodes Scholar, newspaperman, independent columnist, speech maker, commentator, and Chief Executive – for thirty years – of the South African Institute of Race Relations, Kane-Berman has been at the coal face of political change in South Africa. The breadth and depth of ideas and events covered here are striking: the disintegration of apartheid, the chaos of the ‘people’s war’ and its contribution to the broader societal breakdown we see today, the liberal slide-away, the authoritarian ANC with its revolutionary goals, to mention a few. Kane-Berman’s willingness to confront received wisdom is thoroughly refreshing, and he is forthright about the threats to freedom, democracy, and growth in contemporary South Africa, many of which he identified even before the ANC came to power. 



n March this year, the Fearless Girl statue was placed near Wall Street’s iconic Charging Bull statue. The bronze girl was part of an advertising campaign for Boston-based investment firm, State Street Global Advisors. The sculptor of Charging Bull, Arturo Di Modica, is not amused. He says his work that represents “freedom in the world, peace, strength, power and love” has been turned into a negative symbol: “The girl is right in front implying: ‘Now I’m here, what are you going to do?’ ” Di Modica’s lawyer, Norman Siegal told the media that the placement of Fearless Girl opposite Charging Bull uses the earlier sculpture for commercial gain, undermining its integrity. “The Charging Bull no longer carries a positive, optimistic message. Rather it has been transformed into a negative force and a threat,” he was quoted as saying. Fearless Girl is by Kristen Visbal. It is seen by many as symbolising female empowerment and its popularity means it will stand near Di Modica’s bull until 2018.

From his 30 years of experience as a consultant and business writer, Tony Manning has distilled a set of must-do strategy practices that apply to every company everywhere. These are ‘the critical core’. In this book, he outlines ten principles that should inform strategy, and eight critical practices that make the difference between winning and losing in business. In addition, he explains clearly how to apply them in effectively crafting and conducting any organisation’s strategic conversation.  The Critical Core is drawn from Manning’s previous book, What’s Wrong With Management and How to Get It Right, and provides a simple, sound and practical guide to success in a volatile and unpredictable world. It’s a quick read, yet offers invaluable insights to any executive in pursuit of better business results.

10 years ago, the iPhone was launched, SA won the Rugby World Cup, Facebook went live, the sub-prime mortgage bubble burst, the Rand was at R7.20 against the US Dollar, Kanye was “Stronger� and Jacob Zuma was elected president of the ANC. Amidst all this 27four readied to disrupt not knowing what the future would bring. As we reflect on achieving this 10 year anniversary milestone, we thank all our clients and friends for your unwavering support. @27four 0800 000 274 (toll-free)

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MoneyMarketing (June 2017)  

MoneyMarketing’s June issue features the second of the publication’s offshore investing specials for 2017. We look at offshore property and...

MoneyMarketing (June 2017)  

MoneyMarketing’s June issue features the second of the publication’s offshore investing specials for 2017. We look at offshore property and...