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30 June 2019 | www.moneymarketing.co.za

@MMMagza

First for the professional personal financial adviser

WHAT’S INSIDE

YOUR JUNE ISSUE

FINANCIAL SERVICES COMPLIANCE: ARE YOU ON TRACK? MoneyMarketing's guide to investing offshore in volatile times

Page 11

It’s time to do a mid-year compliance check-up

Page 7

ELECTIONS 2019: WHERE TO FROM HERE? The results are seen as providing Ramaphosa with a mandate to continue his reform and anti-corruption drive

Page 24

Businesses increasingly exposed to liability risks

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pecialist risk underwriter SHA released its second Annual Specialist Risk Review last month at a briefing in Johannesburg, revealing that businesses are becoming increasingly exposed to liability risks that have the potential to close them down. The Review contains first-hand insight into the cost and disruptive impact that human failure and error can have on a business. Loss incidents, the Review says, are attributable to what it calls “the declining Human Capital Risk Index (HCRI)”. In the South African context, the declining HCRI can be seen in incidents such as the corporate collapse and failures of the Steinhoff Group, the outbreak of listeriosis in the processed meat industry, as well as the failure of VBS bank and concerns over the external auditor (KPMG) audit sign-off processes. Other examples include the collapsed Johannesburg M1 pedestrian bridge while under construction during rush-hour traffic, as well as the ongoing operational and financial failures at Eskom. According to the Review, as losses resulting from the declining HCRI continue to rise in both

frequency and quantum, the challenges for insurers are becoming apparent. “Globally, capacity and appetite for the liability risk classes are diminishing at a rapid rate. Specialist underwriters are facing job losses, insurance premiums are climbing, and coverage is being curtailed. The risk pool diversification argument resulting in the underpricing of these risk classes has been exposed as the claims liability tail develops fully,” the Review states. It sounds a warning that action must be taken now to ensure a viable and sustainable insurance market that will provide ongoing innovative solutions to businesses well into the future. The Review finds that there are many reasons driving the declining HCRI locally, including declining educational and professional standards aimed at producing more graduates, as well as the mass exodus of highly skilled and experienced professionals from the country, coupled with an

increasingly complex business environment caused by multiple system independencies. And then there’s the human greed factor. Claims data SHA’s own claims data from the last five years shows the very definite link between the increasing liability risks across the board and the country’s flailing economy. The quantum and frequency of claims in professional indemnity, personal injury, and Directors and Officers insurance, have all increased as a result of the growing skills shortages, declining quality of graduates entering the market, lack of proper controls and risk management, and cost-cutting measures. In 2018, SHA paid a record R700m in claims. The Review finds that the average quantum of a liability claim has risen significantly in a relatively short space of time.

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Allan Gray is an authorised financial services provider.

Continued on page 3

There’s no time like the future.

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2019/05/09 2:41 PM


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NEWS & OPINION

30 June 2019

Continued from page 1

Between 2016 and 2018, the average value of intimated liability claims expanded by over 100%, from R557 000 to R1.25m. The total value of capital settlements on liability claims during this period also grew by 42%. The results from older data are even more astonishing, with the annual liability claims payments rising by 190%, from In terms of the total claims that were paid, R59m in 2013 to R171m at the end of 2018. professional indemnity and liability policies paid While the average value of intimated out a combined sum of around R276m in 2013, professional indemnity claims has not grown for which went from R360m in 2016 to R440m in all sectors, in certain professions, such as in the 2018, reflecting a total increase over the period built environments, average intimated claim values of 59%. rose from R5.7m to R8.5m between 2016 and 2018 – an increase of 49%. Looking at the five-year Legal fees claims data, the same staggering trend is evident SHA believes that a key strategy in improving with claims payment values on professional the value proposition for both the insurer and indemnity claims growing by 24% from R217m in the client is to focus on identifying and settling 2013 to R269m by the end of 2018. valid claims before litigation ensues, “thereby In the professional indemnity space, the drastically cutting down on high litigation costs increases are in part driven by professionals incurred to defend these claims”. taking on work at reduced fees Legal fees have risen by between with resultant cost-cutting 8% and 10% each year. “When THE CHALLENGES considering the inflationary effect strategies, the Review finds. This inevitably has an adverse that legal costs have on liability FOR INSURERS effect on risk management, and ARE BECOMING cases that routinely take three contributes to the rise in claims. to five years to reach settlement, APPARENT More professionals are also this represents a major source of venturing into other areas of erosion on the sum insured of any business in an attempt to diversify their offering given policy,” SHA adds. to remain competitive in a struggling economy, To mitigate against the high cost of legal fees, further exacerbating the situation. “We have SHA adopted a strategic approach to claims also seen the impact of the loss of professional management beginning in 2015. “This approach skills to the overseas market, with resultant included moving more of our legal work in-house, deterioration in the level of skills transfer within managing our legal resources more efficiently, and businesses – leading to errors by inexperienced actively finding ways to avoid becoming embroiled staff,” SHA says. in lengthy and costly litigation.”

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s June 2019 issue and would like to reward its professional members with 1 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics. For more information, visit our website at www.moneymarketing.co.za

EDITOR’S NOTE

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ournalists and editors are not required to log CPD points – but the very nature of the job means that they have to keep abreast of the very latest news and trends. I learned as a very young journalist that the news waits for no one and that playing ‘catch up’ is an onerous task. It is for this reason that I read both a South African and British newspaper every day – without exception. I also follow both the Bloomberg and the Reuters news services and I am fortunate to be in continuous contact on WhatsApp with two respected economists. In the evenings I spend 90 minutes watching the SABC news, ENCA, Bloomberg and CNBC. If something happens that impacts the pockets of South Africans, I want to know all about it – it’s my job. It is no coincidence that MoneyMarketing was one of the first publications among its peers to examine the possibility of prescriptive assets in detail. Fortunately, my husband, a news and corporate photographer, shares my insatiable appetite for current affairs knowledge. I imagine that financial intermediaries are equally intent on acquiring knowledge – when time permits, as most of the advisers I meet are committed to spending time with their clients. I note that intermediaries are now required to perform CPD activities during a CPD cycle of 12 months, beginning on 1 June of every year and ending 31 May of the following year. This year, acquiring sufficient points is mandatory for FAs in order to retain their professional designations. I’m happy to announce that the FPI recognises the quality of the content of MoneyMarketing’s June 2019 issue and would like to reward its professional members with 1 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics. For more information, see our website at www.moneymarketing.co.za. Janice janice.roberts@newmedia.co.za @MMMagza www.moneymarketing.co.za

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NEWS & OPINION

30 June 2019

VERY BRIEFLY

PROFILE MEL MELTZER DIRECTOR, PLATINUM PORTFOLIOS

How did you get involved in financial services – was it something you always wanted to do?

gearing and a good management team. I like to pay the cheapest possible price for any business, giving me the best possible return over the long term. I After I completed my BA (Law) LLB at Stellenbosch am very fortunate that we have built a model at University, I spent a year working for the Department Platinum Portfolios that applies all these factors in of Justice before completing my the fund management process. articles at Findlay and Tait in In the current cycle, due to such WE HAVE BEEN Cape Town. I realised that the low interest rates and easy money, law was not for me. I then moved it is extremely difficult to find FORTUNATE to Johannesburg and set up an businesses to buy at a price that TO HAVE BEEN audiotext business, which I sold makes sense. I believe that being AWARDED THREE patient will provide opportunities before being offered a position at Seeff Financial Services. and there is no need to buy shares RAGING BULL I have always been interested in due to the herd behaviour of the AWARDS the stock exchange and bought and market or the fear of missing out in sold shares from a young age. My the short term. first job in financial services put me on the playing field and I enjoyed the business, the people and What was your first investment, the environment. I knew early on that this is what I and do you still have it? wanted to do for the rest of my life. My first investment was applying for Sasol shares In 2000, I started Platinum Portfolios with my when the company listed on the JSE in 1979 – over partner Charolyn Pedlar, and the last eighteen years the long term, Sasol has been a good investment. have made for an interesting journey. We started I sold the Sasol shares early in 2000 to start the business from scratch – and building it from the Platinum Portfolios. ground up was not always easy. Shortly after setting The best share I bought was the Johannesburg up Platinum Portfolios, there was the rand sell off, the Stock Exchange in 2004. The bourse demutualised IT bubble burst, the 9/11 attacks took place and the and listed on the JSE in 2005 and the price market sold off in 2007/8, making it a volatile ride. appreciation was more than ten-fold in the first year.

What makes a good investment in today’s economic environment?

A good investment for me is a company that I find easy to understand and that has a business model that will thrive over a long period of time. Ideally, I like to buy businesses that have a strong competitive advantage, make good profits and are able to maintain their margins. The company must have sensible

What have been your best – and worst – financial moments? Over time I have made good and bad decisions. The worst moment for me was when the Coronation share price dropped by more than 30% on the release of a negative analyst’s report. The best investment I have made is the one in Platinum Portfolios. The company has grown from strength to strength and we have been fortunate to have been awarded three Raging Bull Awards for both our single manager and our multimanager solutions. This year, we were awarded the MorningStar award for the World-Wide Flexible Fund and we were nominated for the best small fund range in South Africa.

UPS & DOWNS

Financial services group MMI Holdings last month issued an operating update for the third quarter of the financial year, indicating that diluted normalised headline earnings increased 19% to R2.4bn relative

to the prior period. The company said that diluted normalised earnings per share rose 26% – reflecting the positive impact of the share buy-back programme and the group’s ‘Reset and Grow’ strategy.

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Stats SA’s Quarterly Labour Force Survey showed that the unemployment rate rose to 27.6% in the first quarter of 2019, with the economy bleeding 237 000 jobs during the period. This was an increase of 0.5 percentage

points compared to the 27.1% recorded in the fourth quarter of 2018. The Survey shows that there are 16.3 million employed people and 6.2 million unemployed people between the ages of 15 and 64 years in the country.

Global law firm Norton Rose Fulbright has announced that banking and finance lawyer Mbali Mavundla has re-joined its Johannesburg office as a senior associate. She returns to Norton Rose Fulbright after completing an MBA in global banking and finance from the University of Birmingham in the UK. Mavundla focuses on advising finance institutions, including large commercial banks and developmental finance institutions. Her experience includes project finance, acquisition finance, development finance and asset finance. Mbali Mavundla

FNB Islamic Banking has been awarded ‘Best Islamic Banking Window in South Africa for 2019’ at the Global Business Outlook Awards. The awards recognise and reward excellence in businesses that display innovation, creativity and the drive to create value within the global business community. The Islamic Banking Window category assessed FNB Islamic Banking’s overall commitment to Shari’ah compliance and social responsibility. The awards committee also considered the general innovation in products and services, as well as adherence to the best practices of the global Islamic financial services industry. “We are truly honoured to be named the Best Islamic Banking Window in South Africa for 2019 by Global Business Outlook. This is testament to the lengths FNB Islamic Banking has gone to create industry-leading Islamic banking solutions that cater for our customers’ specific Shari’ahcompliant banking requirements,” says Amman Muhammad, CEO of FNB Islamic Banking.

The Mergence group has acquired a controlling stake in Cadiz Corporate Solutions, with the team rebranded under the name Mergence Corporate Solutions, with a presence in Johannesburg and Cape Town. Robbie Gonsalves will continue to lead the team of eight people, among them veteran mining analyst Peter Major. The Mergence Corporate Solutions team will continue to offer services in the areas of Mergers and Acquisitions, Corporate Restructuring, Capital Raising, Black Economic Empowerment, Business Valuations and Derivative Strategies. It will continue its partnerships with leading M&A practices in China through The Beijing Axis, and in India through Eternus.

Insurer King Price was named the brand that delivers the best customer experience in South Africa when it won an award at Corinium’s inaugural Customer 360 Africa 2019 Awards. The insurer received the ‘Best Customer Experience Award by an Organisation or Team’ in recognition of its ongoing innovations around enhancing the client journey. King Price entered the SA insurance market in June 2012 with a customercentric insurance model to automatically decrease comprehensive car premiums monthly in line with the cars’ depreciating values. “But what clinched the award was the company’s use of technology to improve the customer experience,” says King Price’s Dr Eugene Wessels.


NEWS & OPINION

30 June 2019

The election is over – what happens now? MoneyMarketing looks at the mandate the ANC has been given to get SA back on track.

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resident Cyril Ramaphosa’s ANC secured 57.5% of the votes in May’s parliamentary election, broadly in line with expectations and viewed as favourable by the markets. Does this mean we can look forward to meaningful change? Not necessarily, say Dave Mohr and Izak Odendaal from Old Mutual Multi-Managers. They point out that the ANC remains divided and no election outcome could have changed this. “It [the ANC] is a consensus-driven organisation whose president cannot make unilateral decisions. Its highest decision-making body, the National Executive Council, was elected in December 2017 and will remain in place until the next elective conference in 2022. It is unlikely that the party will agree to fundamental shifts in economic policy (such as widespread privatisation or deregulation), but tweaks are likely.” They do point out, however, that the Constitution does empower the President to implement certain decisions at his discretion, notably appointing Cabinet ministers. “So there is a lot that President Ramaphosa can still do to reform the functioning of government and State Owned Enterprises (SOEs), and it is in this area that he can continue to make progress. His new Cabinet will be the first test and investors would like to see a smaller body, consisting largely of skilled, enthusiastic members with a reputation of integrity.”

ANC and President Cyril Ramaphosa one last chance to put South Africa back on track to a caring, efficient, clean and productive country where a better life for all is not just an electioneering slogan,” say economists at NKC African Economics, Jee-A van der Linde and Gerrit van Rooyen. “The poor [voter] turnout reflects some of the reservations but the performance of the party overall in key constituencies, such as Gauteng and KwaZulu-Natal, suggests the current leadership should be allowed the opportunity to fix the mess it presided over,” they add. According to David Lewis, executive director of Corruption Watch, the ANC lost votes because of the corruption of the Zuma administration. “We believe that it has nevertheless managed to secure another mandate to govern, largely on the basis of Ramaphosa’s commitment One last chance to tackle corruption,” he adds. “It is clear that with some reservation There is, however, a concern that the electorate has decided to give the a faction 1in2019/05/07 the ANC willPM endeavour Money_Marketing_Quater_Page_June_Issue_220x80mm.pdf 03:15:17

to force Ramaphosa out before his term is up. According to Peter Attard Montalto, Head of Capital Markets Research at Intellidex, there will be intense focus on Ramaphosa being removed at the ANC’s National General Council – its halfway conference between each elective conference – expected towards the end of the second half of 2020. “However,” Attard Montalto adds, “we do not see any significant probability of that. Whilst technically possible, it would require six out of nine provinces to request a vote on the position of president of the ANC and then a majority vote of all delegates to remove him.” Risks linger According to Arthur Kamp, Investment Economist at Sanlam Investments, while it seems fair to argue that the general election of 2019 may signal an end to South Africa’s slide into economic policy uncertainty and depressed confidence, risks linger.

He explains that at the forefront of the President’s mooted reforms is a bid to encourage a surge in jobs producing fixed investment spending, including foreign direct investment – supported by a programme to bolster business confidence, partly by improving the ease of doing business in South Africa and addressing governance and financial management issues at key public sector enterprises. “But, in addition to policy clarity and certainty, investors need to be assured that the lights will stay on. Accordingly, Mr Ramaphosa’s SONA alluded to a plan to split Eskom into three separate businesses – to isolate the costly and inefficient generation component of the electricity supplier, ostensibly paving the way for Eskom’s transmission business to purchase electricity from cheaper and more efficient producers, while also increasing usage of renewable energy.” Kamp warns that the best plans are likely to come to naught should South Africa not address the everpresent risk posed by its failed fiscal consolidation. “The contingent liability risk lurking in the extensive guarantees issued by the government on the debt of the public sector enterprises has come home to roost, culminating in a cumulative R69bn cash injection, if not more, by the National Treasury into Eskom over at least the next three years.” This draws attention to government spending more broadly. “Even though Mr Ramaphosa is expected to drive economic reforms, the developmental state model remains central to government’s economic planning and the policy objectives of the ANC party, including fee-free education and the proposed shift towards national health insurance, preclude a sharp reduction in spending,” Kamp says.

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NEWS & OPINION

30 June 2019

Financial services compliance: Are you on track?

RICHARD RATTUE Managing Director, Compli-Serve SA

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s we approach the middle of another year, it’s a good opportunity to do a mid-year compliance check-up, to avoid any mishaps before they happen. The FSCA’s current overhaul of regulation for financial services reminds us that change is in the air. The year is going by quickly, but that won’t serve as an excuse if you lapse on what is required of you. Below are some key reminders to help reduce some compliance risks you might be facing.

But first, COFI The Conduct of Financial Institutions (COFI) Bill seeks to harmonise cross-sector legislation and repeal the current sectorial legislation, specifically FAIS, the Collective Investment Schemes Act, the Longterm Insurance Act, the Short-term Insurance Act, and some additional amendments to other existing pieces of legislation. Understanding the full impact is essential – even if it takes time to become clear.

DON’T GO INTO THE FUTURE BLINDLY – FOREWARNED IS FOREARMED

Recent discussions around regulating cryptocurrencies indicate that technology is on the Regulator’s radar, so it is best to watch this space. Go fourth and conquer The fourth industrial revolution is a concept we’re all familiar with. Financial industry participants and Regulators globally are sitting up and taking notice of disruptive technologies that are starting to make their presence felt in financial services. As increased connectivity takes shape and data analytics, machine learning and robotics become more commonplace, adapting will be necessary to survive. Think about your customer This shouldn’t be a necessary reminder, but fair customer outcomes are at the heart of much of the proposed change in the industry, coupled with transforming financial services and reducing barriers to entry, and further enhancing market inclusion. Looking

into how artificial intelligence can help facilitate cutting your client data, so that you might better service clients, is an important step to consider. Your compliance must function Rapid advancements in technology promise us that we will be working smarter and faster in times to come – but keeping up with the myriad of regulations in play will be harder to do. It is worthwhile to seek professional compliance advice and guidance to help position your business ahead of the regulatory curve. Don’t go into the future blindly – forewarned is forearmed.

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Conduct of Business Returns cometh The majority of sector-specific legislation will likely cease to exist over time as the FSCA knocks down the current silos, redesigning them into a more proportionate and resilient regulatory model for the future. The longstanding FAIS report was to have been replaced by the Conduct of Business Returns (CBRs) – however, the FSCA has delayed the

launch, and rather tasked licensed providers to ensure their data records at the FSCA are up to date. The CBRs is likely to only be effective from the 2020 reporting season.

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The following entities are licensed Financial Services Providers (FSPs) within Old Mutual Investment Group (Pty) Ltd Holdings approved by the Financial Sector Conduct Authority (www.fsca.co.za) to provide advisory and/or intermediary services in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. These entities are wholly owned subsidiaries of Old Mutual Investment Group Holdings (Pty) Ltd and are members of the Old Mutual Investment Group. Old Mutual Investment Group (Pty) Ltd (Reg No 1993/003023/07), FSP No:604. | Old Mutual Alternative Investments (Pty) Ltd (Reg No 2013/113833/07), FSP No:45255. | African Infrastructure Investment Managers (Pty) Ltd (Reg No 2005/028675/07), FSP No:4307. | Futuregrowth Asset Management (Pty) Ltd (Reg No 1996/18222/07), FSP No:520. Figures as at 31 December 2018 unless otherwise stated. Sources: Old Mutual Alternative Investments; African Infrastructure Investment Managers (AIIM); Old Mutual Specialised Finance; Futuregrowth Asset Management.

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INVESTING

30 June 2019

HAYLEY BROWN Executive: Business Development, PPS Investments

Blending passive and active investing

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administrative requirements resulting hen making decisions in lower transaction fees and a saving about active and passive on research costs. investments, it is important to know the difference Why choose when you can between the two. combine the two? An active approach aims to find The active versus passive conversation opportunities to outperform the has had very strong arguments on market. Skilled portfolio managers both ends of the spectrum. Despite gather, analyse and interpret data all the great thinkers contributing to and select companies they believe the debate, the answer is not active or are likely to beat a predetermined passive: it’s both. benchmark. Asset managers rely A strategic blend of active and on extensive research, professional passive allows a more holistic judgment and industry experience approach. Combining to actively buy, hold them decreases and sell securities in dependency on the seeking to generate THE ANSWER market cycle. In addition, alpha (returns in excess IS NOT ACTIVE using passive investments of a market index). OR PASSIVE: in active portfolios The downside of the reduces costs. active approach is that IT’S BOTH In the current many managers find it economic climate, many will seek difficult to deliver on this objective consistently. the most cost-effective opportunity A passive approach involves and weigh up the pros and cons investing in baskets of securities that before choosing a product or service. replicate a market index or benchmark Similarly, as an investor, you may also (also referred to as an ‘index tracker’ be increasingly more fee-conscious and Exchange Traded Fund [ETF]), when considering an investment. instead of trying to outperform the Aligned to government’s ongoing market. In other words, an index retirement reform, fee and cost tracker seeks to match market returns structures within investments are as closely as possible. now clearer and more standardised Passive investments are generally across investment service providers. more cost-effective, due to simpler Initiatives such as the Effective Annual

Costs (EAC) standard, introduced in 2017, enable investors to compare the fees and costs of investment solutions from various service providers. The most recent change became effective from 1st March 2019, compelling all service providers and retirement funds to comply with the standard on retirement savings cost disclosures. Both standards endorse full disclosure of costs levied by administrators, advisers and asset managers. This level of disclosure empowers and educates investors on their investment choices in the pursuit of wealth creation. The example below blends the PPS Balanced Index Tracker Fund (A2 class) with three of the most popular retail funds of the last year, based on ASISA retail flows. The table illustrates the reduction in fee that the client experiences when introducing a passive fund to an existing active portfolio.

PPS Balanced Index Tracker Fund The PPS Balanced Index Tracker Fund is a passive multi-asset high-equity option for long-term investors, based on the carefully constructed PPS Balanced Index. There will be times when the PPS Balanced Index will underperform active managers, but we believe a portfolio tracking this index will provide a useful diversification for investors seeking to combine active managers with a core tracking portfolio in the solutions they construct. The portfolio has been constructed as an appropriate Regulation 28-compliant solution for South African investors saving for their retirement. The PPS Balanced Index Tracker Fund has grown to over R500m, and the increased scale has allowed us to reduce the management fee to 40 basis points (bps). As a result, the total investment cost (TIC) is expected to drop from the current 80 bps to around 65 bps.

Fund

TIC

Active manager (no passive)

Blended portfolio

Fund A

2.10%

33.33%

25.00%

Fund B

1.10%

33.33%

25.00%

Fund C

1.53%

33.33%

25.00%

PPS Balanced Index Tracker A2

0.80%

0.00%

25.00%

1.58%

1.38%

Estimated TIC*

*TIC consists of the Total Expense Ratio (TER) and the Transaction Costs (TC)

Vote of confidence by Goldman Sachs in the future of SA Goldman Sachs plans to expand client offering in SA

Colin Coleman

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oldman Sachs last month announced its intention to broaden its service offering in South Africa and strengthen its ongoing commitment to the country. The firm intends to expand its onshore presence by offering fixed income products, including foreign exchange and South African government securities, to corporate and institutional investors in South Africa. In addition, Goldman Sachs and Investec announced that they have entered an exclusive cooperation agreement for equity trading in South Africa. The agreement will enable both firms to extend their equity trading capabilities in the country and deepen links with African and international institutional clients seeking to invest in the region. The cooperation arrangement will be launched in the coming weeks and will look to expand

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to additional African markets. Goldman Sachs has been offering advisory, wealth management and asset management services to corporations, investment firms, government institutions and individuals in South Africa for many years. The expansion of its offering will allow the firm to engage in a wider range of activities and support the functioning of capital markets in the region, as well as helping to contribute to economic growth. The initiatives are subject to certain regulatory approvals. “We see tremendous opportunity to better serve local and global clients investing in South Africa and the wider region,” says Richard Gnodde, CEO of Goldman Sachs International. “Africa is a substantial and growing part of our international business and we are excited to connect clients globally with more opportunities

across the continent through our expanded hub in Johannesburg.” Colin Coleman, chief executive officer of Sub-Saharan Africa for Goldman Sachs and head of the Johannesburg office, says the expansion is a vote of confidence by Goldman Sachs in the future of South Africa, and the region as a whole. “It is testament to our confidence in the unfolding structural reforms in South Africa, which should drive higher economic growth rates and economic opportunity for our clients and the people of the region,” he adds. “The long-term economic potential of South Africa is unquestionable. We are proud of our track record in the region over the last twenty years, and are pleased our expanded presence will deliver the full Goldman Sachs firmwide offering to our local and global clients as they continue to build their businesses here.”


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THE PPS PARTNERSHIP FUND RANGE IS AVAILABLE. We’ve expanded our fund range to meet your clients’ dynamic needs. We’ve partnered with Sasfin Asset Managers, Tantalum Capital and 36ONE Asset Management to bring you a new range of single-manager funds across the low, medium and high equity ASISA categories. To hear more about this new range, contact your PPS Investments Investment Specialist. Alternatively visit www.pps.co.za/invest or call 0860 468 777 or email clientservices@ppsinvestments.co.za.

Colin Coleman, CEO: Sub-Saharan Africa, Goldman Sachs Terms and conditions apply. PPS Investments is an authorised FSP.


INVESTING

30 June 2019

JON DUNCAN Head: Responsible Investment, Old Mutual Investment Group

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lobally, there is now clear recognition that the safe and sound functioning of society and the biophysical environment are essential to the long-term health of the markets. As a consequence, investors are being challenged to account for whether investments being made today are building or eroding future social and environmental systems resilience. At a local level, South Africa faces a unique set of challenges, ranging from extreme wealth and income inequality, governance challenges, low economic growth, lagging infrastructure and increasing environmental stress. However, these challenges also create interesting opportunities for long-term investors like Old Mutual. Capturing these opportunities not only allows us to generate appropriate risk-adjusted returns for our clients, but also to contribute to creating a sustainable and inclusive future for all. We recognise that the new paradigm of investing requires a shift from balancing risk and return to balancing risk, return and impact. We have embraced this shift and embedded it as a part of our fiduciary commitment to our clients across all of our investment capabilities. We manage this effort collectively under our Group-wide Responsible Investment (RI) Program, details of which are shared in our annual Responsible Investment Report. At the heart of our RI program is an understanding that environmental social and governance (ESG) issues can and do impact investment and system resilience outcomes. This isn’t surprising, because the nature of the world as we know it is at stake. We face a very real existential

Responsible investment themes to consider crisis if our impact on society and the environment continues unabated. Continuing themes to consider In the remainder of 2019, we expect that the ‘G’ factor in ESG, representing governance, will remain front and centre for South African investors. We anticipate a greater amount of shareholder proposed resolutions at company annual general meetings, coupled with more vocal pushback from civil society organisations to corporate responses on ESG issues. The South African Carbon Tax Bill was passed in Parliament on 19 February 2019. The Bill includes a R120 per ton carbon tax for primary greenhouse gas emitters, a carbon tax on liquid fuels, economic incentives for energy efficiency, and the use of carbon offsets as a means of reducing the tax burden. What is envisaged is a phased approach, with the first phase extending from June 2019 to December 2021, escalated at 2% above CPI annually. With the planned implementation of the national carbon tax this year, we expect that the climate change debate in South Africa will gain further traction and we see greater investor focus on costs, disruption and transition risks. Coupled with this, we expect that climate consideration will feature heavily in future energy planning in South Africa by way of the Integrated Resource Plan.

priority issue for investors in 2019. Aside from Broad-Based Black Economic Empowerment score compliance, we see addressing this issue as central to building a stable and prosperous South African economy and so we’ll continue to champion progress through our engagement activities as we simultaneously drive inclusion and diversity within our own organisation. A responsible retail market The retail market in South Africa is slowly waking up to the fact that they can and should have a choice when it comes to how their capital is managed. Our expectation is that there will be growth in demand for ESG-themed products and, coupled with this, innovations in this area. A driving force here will be the Financial Service Conduct Authority Directive on Sustainability reporting for pension funds.

Transformers The social challenges of unemployment, skills development and inequality still facing South Africa mean that transformation also remains a

Grow your wealth by attending the Allan Gray Investment Summit

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fter successfully bringing Gifford, Columbia Threadneedle, Orbis together renowned investment and Schroders, alongside prominent experts from all over the globe fund managers from South Africa, for two consecutive years to sold-out namely Allan Gray, Coronation, audiences, the Allan Gray Investment Prudential, Sesfikile and STANLIB. It Summit will be back in July 2019 to promises yet another bumper agenda, bring investors ideas that build longgiving audiences a rare glimpse into term wealth. the investment minds of top fund “Last year’s managers, and tips event received on how to become a overwhelmingly better investor. LAST YEAR’S positive feedback, A highlight on the EVENT RECEIVED with 96% of agenda for this year OVERWHELMINGLY attendees saying is Russian-American they would POSITIVE FEEDBACK psychologist and attend again,” writer Maria says Tamryn Lamb, Head of Retail Konnikova, who will draw on her Distribution at Allan Gray. “This year experience as a professional poker we look forward to sharing insights and player. She has written award-winning investment opportunities from 14 local New York Times bestsellers, The and international thought leaders from Confidence Game and Mastermind: nine investment companies.” How to Think Like Sherlock Holmes. She says the Summit will host leading Other highlights at South Africa’s global fund managers, including Baillie biggest investment conference include:

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• Where the smart money is investing now to get ahead of the herd. Allan Gray, Orbis and Columbia Threadneedle discuss how early investors in artificial intelligence, energy and African frontier markets stand to benefit and how you can do the same. • Actionable ideas from Allan Gray, Sesfikile Capital and Schroders as they discuss trades they think are worth getting excited about, from listed property to deep value shares. • How to be a better investor by avoiding common mistakes and seeing through investment myths, with presentations from Coronation, Prudential and Baillie Gifford. • A look at the prospects for South Africa, by STANLIB economist Kevin Lings. • Top stock picks backed up by a solid investment case presented by eight leading investment managers.

The Allan Gray Investment Summit will take place on 22 July at the Cape Town International Convention Centre and on 23 July at the Sandton Convention Centre. Tickets are now on sale to the public at R2 000. Seating capacity is limited and both 2017 and 2018 events were sold out. For more information and to book tickets, visit www.investmentsummit.co.za.

Tamryn Lamb, Head: Retail Distribution, Allan Gray

WIN A DOUBLE TICKET TO THE ALLAN GRAY INVESTMENT SUMMIT

Simply email your name, company, address and cellphone number to Janice.Roberts@newmedia.co.za *Terms & conditions apply


OFFSHORE SPECIAL SUPPLEMENT

STAPLES MAY BE STABLE, BUT ARE THEY SAFE? PAGE 18

CONSIDER YOUR PORTFOLIO HOLISTICALLY WHEN INVESTING OFFSHORE PAGE 22

T R A DE T E N SION S M A K E H E A DL I N E S AG A I N PAGE 14


OFFSHORE SUPPLEMENT

30 June 2019

US ECONOMY REMAINS ‘SOURCE OF UNCERTAINTY’

NEW GLOBAL EMERGING MARKETS FUND ANNOUNCED

MoneyMarketing spoke to Philip Saunders, co-head of Multi-Asset Growth at Investec Asset Management, about the US, Chinese and Eurozone economies and how fund managers should position themselves in global markets. Markets are forward looking, so the sharp sell-off last October was interpreted by some investors to mean that global growth has peaked and a global recession is on the way. Others are not convinced. What is your take on the US economy where GDP rose at a 3.2% annual rate in the first three months of the year and what do you make of the Fed’s latest decision (1 May 2019), where it kept interest rates on hold at the 2.25% to 2.5% level? The US economy remains a source of uncertainty for us. It appears to be in the late cycle phase on most measures*, while the impulse from fiscal stimulus is set to fade sharply through the second half of this year before becoming a drag on the economy next year. The lagged effects of monetary tightening will also continue to filter through this year. The counterargument to this is that the adjustment in Fed policy is more important than investors believe, with the central bank moving from expecting to hike rates four times in 2019 while shrinking its balance sheet, to no rate hikes and talk of halting balance sheet contraction early. Most importantly, the Fed has halted rate hikes south of where they believe the equilibrium interest rate (the interest rate where the economy would be in balance) for the economy to be (3%). This has reduced the probability of an imminent US recession, although a flat US yield curve continues to point to monetary policy being too tight at present. The other key economy is China, and here the prospects of stabilisation and an eventual uptick in economic activity after a period of material deceleration are good. Reform momentum is strong and the transition to a more domestically driven growth model should also be a supportive factor. Finally, consensus growth expectations in Europe seem to be too negative. Domestic demand is firm and weakness relates largely to a sharp deceleration in exports, which should moderate. Overall, we expect this cycle to extend further – fears of an imminent recession are exaggerated – but growth asset valuations are already elevated in key markets and asset classes. In recognition of the late cycle environment we are in and the risk of a sharper-than-anticipated US slowdown, we believe that a balanced approach remains appropriate, with a healthy level of exposure to defensive assets to counterbalance growth exposure. An array of data has pointed to worrying signs of a slowdown in the Eurozone – shouldn't investors steer clear of Europe? We see a cyclical opportunity in the Eurozone and have in fact increased exposure to European equities, given improved valuations and depressed investor sentiment. Specifically, we’ve added positions in German mid and large caps, UK mid-caps and European banks. Pessimism towards Europe is pervasive at present, while our analysis points to the core of the European economy, consumption, remaining relatively stable. Business investment and exports have taken a knock, but this appears to be largely a result of the slowdown in China. Looking forward, we expect the negative impulse from China to abate, while fiscal expansion (around 0.6% of GDP), negative real interest rates and a weaker euro and energy prices should provide support for the economy

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through the second half of the year. We see scope for re-rating in the region’s equity markets as a result, with investor expectations now very depressed versus our more constructive outlook for the region. How fragile is China at the moment? We see positive change – both from a structural and cyclical perspective – taking place across Asia, particularly within the Chinese economy. Structurally, we believe investors continue to underappreciate the extent of change taking place across the Chinese economy. Our research shows that sweeping reform is taking place under the Supply Side Structural Reform (SSSR) program. The cutting back of excess capacity across heavy industry has reduced deflationary forces while also improving profitability and facilitating deleveraging. Excess housing inventory has been cleared in recent years, growth in the shadow banking system has been curtailed and stateowned enterprise (SOE) reform is making good progress. The many reforms seeking to improve the ease of doing business have also made significant progress, as indicated by China’s leap from 78th to 46th place in the World Bank’s Ease of Doing Business rankings.  We believe that reform in China is improving the quality and sustainability of growth, while boosting profitability for corporations. It should also gradually reduce the systemic risk premium that investors continue to place on many Chinese assets. Cyclically, growth in China has been weak because of a self-inflicted credit crunch caused by macro-prudential policy seeking to deleverage the shadow banking system and Trump’s trade war, both of which have weighed heavily on sentiment in China and more broadly across Asia. We’ve also seen a steep change in Chinese stimulus, with authorities indicating that near-term deleveraging objectives have been met, while additional credit is now being funnelled to the private sector and tax cuts amounting to 1.5-2% of GDP have been announced. What is the best way for fund managers to position themselves in global markets at present? We believe that return prospects remain attractive over the balance of 2019 and we added equity and other growth exposure at attractive levels to the Investec Global Strategic Managed Portfolio earlier this year. More specifically, equity market weakness in 2018 provided us with what we regard as an attractive entry point for what is likely to be a multi-year strategic allocation to Asian equities, which we are likely to add to over time. We remain cognisant that we are in a late cycle environment in the US economy, and that it continues to remain appropriate to balance growth asset exposure with selective defensive positions. We will adjust our positioning accordingly when we obtain more conviction as to whether the US economy will experience our expected soft landing or slow down more materially. *The economy is thought to have four phases or cycles: early cycle, mid-cycle, late cycle and recession.

Philip Saunders, Co-head: MultiAsset Growth, Investec Asset Management

The Nedgroup Investments Global Emerging Markets Equity Fund will be managed by NS Partners and is available immediately for investment in both a rand-denominated feeder fund and a dollar-denominated offshore fund. Rob Johnson, Head of Investments at Nedgroup Investments, says the fund is designed to give investors targeted access to some of the fastest-growing economies and equity markets around the world. “Over the years, the emerging market universe has dynamically evolved, thanks to improved accessibility and increased integration of financial markets. Relative valuations and the growth potential offered by companies within these markets through this new fund will also provide diversification benefits to investors,” he says. The fund will invest in quality businesses, primarily through equity securities, listed across all emerging market exchanges and select frontier markets. The performance objective is to consistently produce returns in excess of the MSCI Emerging Markets Index over a full market cycle. London-based boutique investment firm NS Partners follows a unique approach to investing in emerging markets, combining bottom-up fundamental stock selection with a topdown macro and country allocation view. “I am excited that we are able to provide access to the proven capabilities of NS Partners within their emerging market strategy. We have spent many years investigating high-quality managers from all over the world to run this new fund. NS Partners demonstrated the strongest affiliation with the attributes targeted through our Best of Breed selection principles,” says Johnson. Ian Beattie, co-CIO at NS Partners and portfolio manager for the fund, has extensive experience investing in emerging markets. “We are incredibly excited to partner with Nedgroup Investments and we are convinced that our partnership will lead to a winning combination for investors in the fund,” says Beattie. The fund will invest in some of the fastest-growing economies around the world, seeking attractive businesses listed across all emerging market exchanges and select frontier markets. Beattie continues, “The team at NS Partners have been striving for, and delivering, excellent returns from emerging markets for over 20 years through a disciplined, evidenced-based investment process that is grounded in solid theory that reflects our strengths.”


OFFSHORE SUPPLEMENT

30 June 2019

DAVE MOHR AND IZAK ODENDAAL Old Mutual Multi-Managers

TRADE TENSIONS MAKE HEADLINES AGAIN

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rade tensions between the world’s two largest economies are again making headlines and markets are jittery. The good news is that negotiations are still taking place. However, both sides are taking a tougher stance and it appears that talks could drag on for some time. After Trump increased tariffs on $200bn of Chinese imports from 10% to 25% in May, China retaliated by raising tariffs on $60bn of US imports to 25%. The US is considering ratcheting up the pressure by imposing tariffs on the remaining $300bn goods it imports from China annually. Most of the latter category would be on consumer goods and would more directly impact the pockets of US consumers (and voters) than the initial tranche of tariffs that mostly targeted inputs typically used by businesses. Heating up Equity markets had priced in a high probability of an imminent trade deal, based in large part on encouraging comments from Trump and his advisers until the events of last month. The shock saw equity prices fall off recent highs, while bonds, pricing in weaker economic growth, rallied and yields declined. However, all in all the pull-back in equities was muted considering how markets don’t like nasty surprises and hate uncertainty. The S&P 500 fell 10% in February and March last year when the trade war first broke out. Towards the end of last month, the market was down only 3%. High stakes In any high-stakes negotiation, each side tries to gauge where the other side’s pain-point is. In one sense, the US will always have the upper hand, since it imports far more from China than vice versa. It is this persistent trade deficit with China that raised Trump’s ire in the first instance. But the US is a democracy and its leaders more sensitive to pressure from voters. Indeed, China has aimed its retaliatory tariffs largely on areas that voted for Trump in 2016, particularly farmers. For Trump the calculation is whether enough voters appreciate his tough stance on China, to offset the pain caused to some of them. But he also seems to really believe that the tariffs are paid by China, when they are in fact paid by American importers, but the exact impact is difficult to ascertain. Importers may or may not pass the costs on to their customers, potentially choosing between lower margins or lower sales. The Chinese exporters could also cut prices to avoid losing sales, bearing some of the burden (but the importer is still the one paying the tariff). If the importer sources from another country, there is no tariff to be paid, but these would presumably still be more expensive than importing from China. Imports of items from China that were slapped with tariffs last year have already declined between a fifth and a third. Finally, production could shift back to the US – which is what Trump has said he wants – in which case US consumers would effectively be subsidising it. In the latter two cases, Chinese producers lose out, and producers elsewhere gain. Prior to the imposition of tariffs, about 20% of American imports were from China. However, only a third of household spending is on goods, with the rest spent on services (including health, housing, communication and entertainment). Consumer spending accounts for $14tn of the $21tn total annual economic activity. While tariffs can inconvenience US consumers, it will not derail the driving engine of the US economy. In the end, everybody loses if there is an escalation of the trade war. While the direct impact of the trade intervention is already difficult to measure, the indirect impact – increased uncertainty that leads to delayed purchasing and investment decisions – is even harder to estimate. Most economists believe the latter impact is likely to be bigger than the former, but after a period of adjustment, life goes on. Companies will reorganise their supply chains and consumer spending patterns will adapt.

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NESAN NAIR Senior Portfolio Manager, Sasfin Wealth

WHY SOUTH AFRICANS ARE INVESTING OFFSHORE

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outh African investors are buying into global investing. On a dayto-day basis, we interact with these investors who have embraced investing in global companies as a key pillar to their long-term investment strategy. This may seem strange, after all we are geographically and politically isolated from the rest of world. Many believed that we were so inwardly focused that we didn’t really look very far beyond our borders. This is changing. Pragmatism over patriotism Scanning through reasons for this recent push to invest offshore, I believe that this is more a case of a pragmatic assessment of the investment options available than any unpatriotic sentiment towards our country. For one, most JSE-listed companies, especially the blue-chip Top 40, are indeed global companies that happen to be listed locally. Naspers, BHP Billiton, British American Tobacco, Richemont, Bid Corp – the list goes on – all derive the bulk of their profits from foreign jurisdictions, and so we are recognising, as South African investors, that we are actually global investors, even if we buy local shares. The concern, though, is that these companies have a narrow breadth of focus, e.g. Naspers’ holding in Tencent is focused on online and gaming investments in China, not necessarily on global information technology; Richemont only really plays in highend jewellery and watches in the luxury segment, without exposure to lucrative luxury segments such as handbags, clothing, personal goods and motor cars. Is South Africa itself a growth story? South Africa makes up a small part of the global economy (less than 1% by GDP and consumer size). Furthermore, the local economy is growing at a much slower pace than the rest of the world – we’re hoping to grow by 1.7% in 2019, whereas the rest of the world is growing by more than twice that amount. The combined effect of this leads one to look for investment opportunities outside our borders.

Below are some other frequently cited reasons for local investors looking offshore: • Stock market performance – offshore markets, particularly the US and Hong Kong markets, have enjoyed high double-digit growth, whereas the FTSE/JSE’s performance has been lacklustre. In fact, if you stripped out companies with large global exposure on the JSE, the local market has actually gone backwards. • Investment diversification – one of the reasons that comes up all the time. This means different things to different investors, but usually refers to having an investment that protects one against political anarchy or a dramatic fall in the currency and the second round effect of these – social unrest and hyperinflation. • Strong currency – also providing impetus to investors who have very little overseas exposure and regretted it when the currency weakened to R16 against the US dollar. It is very encouraging to see clients being proactive and taking advantage of the strong rand to build their global portfolios, rather than rushing to crowded gates when there’s a currency catastrophe. It’s becoming very easy for South Africans to make offshore investments from an exchange control perspective. Twenty years ago, many South Africans’ offshore investment strategy consisted of going unnoticed through SA customs at OR Tambo, with a wallet full of hard currency notes to be deposited in an overseas bank and keeping it there. Nowadays, with the easing of exchange control regulations and much stricter foreign tax compliance, that’s just not worth the risk. Furthermore, with hard currency interest rates at virtually 0%, cash in the bank is no longer an investment strategy. For this reason, many investors are looking to establish a portfolio of globally traded shares that provide good dividend and capital growth prospects, which can be managed locally through various platforms.


OFFSHORE SUPPLEMENT

30 June 2019

FORM IS TEMPORARY, QUALITY IS PERMANENT

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018 proved to be a volatile year for most sectors, but none more so than consumer staples. Despite being home to a number of the world’s most iconic companies, the sector declined by more than 12.5% in the first five months of the year. The share price of Procter & Gamble – the world’s biggest consumer company – fared particularly poorly, declining by more than 20%. The large declines in the share prices of companies like P&G, Unilever, Coke, Nestlé and other leading branded-goods manufacturers were explained by rising bond yields and mediocre company results. According to the market, the value of their reliable, growing dividend streams had diminished because higher yields could be found elsewhere, and changing consumer preferences threatened dividend growth. A number of market commentators even proclaimed ‘brands are dead’. Just 10 months later, however, it appears that brands are back. The chart below highlights the recovery of the Procter & Gamble share price from 31 May 2018 to 28 February 2019.

The bounce back in consumer staples (up 23.1% since June) has largely been driven by a realisation that higher interest rates (and hence bond yields) are unlikely to be sustained over the longer term due to an over-indebted financial system. Furthermore, recent company results have been encouraging. For instance, Coca-Cola reported a 5% increase in net revenue to $8bn; organic growth at Nestlé accelerated to 3.4%; and, P&G recorded its highest sales growth in almost eight years. Underpinning these good results was their ability to increase prices without losing customers – the primary benefit of a strong brand portfolio. The resilience demonstrated by the likes of Coke, Nestlé and P&G should not come as a surprise. These companies have track records demonstrating an ability to grow profits and dividends across multiple decades. The chart below highlights the dividend track record of P&G since 1980. Consumer preferences would have shifted many times over this 40 year period. Notwithstanding

these changes, it is evident that P&G was still able to maintain a relevant portfolio of sought-after brands. Judging by recent results, so too has Nestlé, Unilever, Coca-Cola, Anheuser-Busch, Reckitt Benckiser and other quality consumer staple companies. Broad, diversified portfolios are one form of protection against shifts in consumer preference. Nestlé for example, manufactures over 2 000 marketleading brands. Huge company balance sheets are another, paving the way for the acquisition of younger, promising brands, which are then leveraged via global distribution networks. Incumbents are also getting better at rolling out new brands. CocaCola, for example, is expanding its namesake brand, pushing forward with rollouts of a coffee-infused variant, and an energy-drink version of Coke. After testing Coca-Cola Plus Coffee last year in Asia, the soda giant now plans to launch it in 25 global markets by the end of this year. Barriers to entry may have come down for newcomers; however, economies of scale, product diversification and a global reach still offer significant advantages. The biggest advantage being time – time to adapt and thrive in an ever-changing world. As such, investors should continue to expect reliable, growing dividends from these companies in the years ahead. In a world of low interest rates and slowing GDP growth, it is likely that these steady income streams will become increasingly sought after. Duggan Matthews, Investment Professional, Marriott 

SEARCH FOR NEW UK PM NOW ON

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ritish Prime Minister Theresa May has now announced her resignation and will step down this month.

“The search for a new Prime Minister is now on and this is likely to bring further political and economic uncertainty for the future of the UK,” says Nigel Green, chief executive and founder of deVere Group. “Uncertainty, typically, causes dips in confidence in the market, meaning that the pound and UKbased assets could be expected to decrease in value as a result,” he adds. “Investors will be watching the Conservative Party leadership contest keenly. The fate of the value of the pound and UK-based financial assets will be shaped by Mrs May’s successor.” May’s resignation follows the end of Brexit talks with the opposition Labour Party, which officially concluded without agreement. “At this stage, bookmakers have the former Foreign Secretary and Mayor of London Boris Johnson as favourite,” says Azad Zangana, Senior European Economist and

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Strategist at Schroders. “The hardline Brexiteer may look to take the UK out of the European Union (EU) without a deal, despite Parliament voting in favour of essentially removing the option. He could do this by failing to comply with the EU’s demands that the UK should continue to follow the rules. This presumably would lead to the EU agreeing to terminate the relationship in October.” Zangana believes that if this were to happen, the economy would be expected to slow and fall into recession around the turn of the year. “While the Bank of England would probably cut interest rates eventually, the expected depreciation in the pound would cause inflation to spike. The household sector has already run down its safety buffer in the form of its savings rate, therefore a contraction in demand is very likely,” he adds. Janet Mui, Global Economist at Schroders Wealth Management,

expects that the mixture of the unwillingness of the EU to renegotiate, Parliament’s lack of appetite for a hard-Brexit, and a potentially toughened stance on Brexit by the new PM points towards further political turmoil. “It is hard to see how a compromise across various stakeholders can be resolved before 31 October. Ultimately, a political process such as a snap election or a second referendum may need to take place to find a way forward,” she adds. Meanwhile, deVere Group’s Green is of the opinion that investors in UK assets should mitigate risks to their wealth by ensuring their portfolios are properly diversified geographically and by asset class and sector. “Exposure to equities and bonds, from as many different issuers as possible, will help safeguard their savings from this uncertainty and take advantage of the opportunities that will inevitably be presented,” he says.


International Investment Portfolio Personalised Share Portfolio with access to the world’s best companies.

Invest for Income Contact our Communication Centre on 0800 336 555 or visit www.marriott.co.za


OFFSHORE SUPPLEMENT

30 June 2019

STAPLES MAY BE STABLE, BUT ARE THEY SAFE?

TAMRYN LAMB Head: Retail Distribution and Orbis Client Servicing, Allan Gray

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hen investors are very excited about a Over the same period, however, consumers have company’s potential growth, even when soured on sugar, and Coca-Cola’s revenues and it is justified, their excitement usually profits today are lower than they were in 2010. The pushes the price up. Think Amazon and Netflix – company has responded by buying back shares – if high-growth companies with price tags to match. You you cut the same pie into fewer slices, it should be usually wouldn’t put staples and utilities in the same easier to keep each share growing. Yet, even on a bucket as the exciting shares. Yet, the ‘momentum’ per-share basis, revenues and earnings have failed to bucket of stocks, which is usually filled with grow. With rising dividends and falling profits, the glamorous high-growth companies, is currently full company is now paying out over 100% of its cash of these defensives. flow, leaving nothing for reinvestment. In their rush to safety, investors The money for these dividends and share COCA-COLA’S repurchases must come from somewhere, have pushed the prices up of certain staples and utilities and are now and without rising profits, the company REVENUES overpaying for perceived stability and turned to increasing debt to prop up AND PROFITS has predictability. At a high enough price, shareholder returns. TODAY ARE even ‘safe’ businesses can be poor Since 2010, Coca-Cola’s net debt per investments. share has more than doubled. The business LOWER THAN Consider Coca-Cola, which is struggling to grow, paying out every THEY WERE outperformed world markets over cent it earns, and piling on debt to keep IN 2010 2018. Having invested in advertising shareholders happy. It simply does not for decades, the company has created appear to be the dependable grower it was an iconic brand selling sugary syrup, which appears in the past. Yet, you’d never know that from looking to be nicely profitable. The company has historically at the share price. Since April 2010, it has matched paid out 60% of the resulting cash, leading to steady the more than 100% rise in the MSCI World Index growth in dividends. This reassuring dividend growth and by 31 March 2019 it was trading at 30 times has continued without a blip in recent years. trailing earnings. That is more expensive than Google

(Alphabet), which is still growing by 15% per year, and as expensive as Tencent, which is growing by 25% per year. Something doesn’t look right. In an environment where many of the expensive stocks aren’t exciting, analysts at Orbis, Allan Gray’s offshore investment partner, hunt for opportunities among shares they believe trade at a discount to their intrinsic value and then focus on the fundamentals of the companies to determine that intrinsic value. Rather than overpay for slowing, increasingly leveraged ‘safe’ shares, they prefer to underpay for good businesses when investor expectations are nice and low. Orbis will be presenting at the Allan Gray Investment Summit in Johannesburg and Cape Town in July 2019. To book tickets, visit www.investmentsummit.co.za

Seize the sunrise in Mpumalanga, while your money seizes opportunities offshore. South Africa has so much to offer, but there’s also a far bigger world of investment opportunity beyond our shores. An offshore investment gives you access to opportunities across different countries, industries, companies and currencies, exposing your portfolio to more possibilities while diversifying your risk. So, while you enjoy life in the country you love, your investment could be discovering a world of investment opportunity. Stay local. Seize global opportunities. www.investecassetmanagement.com/offshore

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Ashburton Fund Managers (Proprietary) Limited (Reg. No 2002/013187/07) is an authorised financial services provider (FSP number 40169) in terms of the FAIS Act, 2002. Ashburton Management Company RF (Pty) Ltd is an approved CIS manager in terms of the Collective Investment Schemes Control Act, 45 of 2002. The Global Leaders Equity Fund is a sub-fund of the Ashburton Investments SICAV; a Luxembourg-registered collective investment scheme approved by the Commission de Surveillance du Secteur Financier (CSSF) and which has been approved for distribution in South Africa in terms of section 65 of the Collective Investment Schemes Control Act, 2002. Issued by Ashburton (Jersey) Limited. Registered office IFC 1, The Esplanade, St Helier, Jersey JE4 8SJ. Regulated by the Jersey Financial Services Commission.

FULLY INVESTED IN BRINGING THE WORLD’S BEST, TO YOU In a volatile and uncertain world, where investment returns are unpredictable, wouldn’t you like the opportunity to access up to 25 of the world’s leading mega cap stocks? Wouldn’t it be even better if they came to you? The Ashburton Global Leaders Equity Fund is a concentrated portfolio of the world’s most prominent companies as measured by market cap, with the aim of delivering sustainable superior returns over the long term through geographic and sector diversification. The fund is available in US dollars as a direct offshore offering, or via the rand-based feeder fund without having to utilise your offshore allowance. From R500 per month or a lump sum of R5,000 via the rand feeder fund, you can put your money to work with the world’s best. Visit www.ashburtoninvestments.com to find out more.

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A part of the FirstRand Group


OFFSHORE SUPPLEMENT

30 June 2019

SEVEN REASONS TO SECURE PERMANENT RESIDENCY IN CYPRUS

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ecuring permanent residency in another country is very desirable as it allows the bearer of that residency permit the legal right to live indefinitely in that country, despite not being a citizen. A residency permit is a sought-after Plan B because it is effectively an insurance policy to be able to relocate to that country at any time without a visa required; and without having to go through the normal onerous immigration processes and procedures. There are a number of countries in Europe offering permanent residency through property acquisition, but investors are cautioned to investigate each programme to ensure they are aware of what the limitations are. Certain countries limit your investment to SDAs (Special Designated Areas), others require that you are domiciled there for tax, some countries have a language requirement and others may insist that you live there for a number of days a year for your residency to remain valid. Cyprus, an English-speaking ex-British colony and full EU member, currently has the best permanent residency programme available in Europe. The programme is an investment in real estate; and with Cyprus’ positive property growth and demand for long- and short-term tenants, this

offers a very attractive investment for the short, medium and long term. Here are the seven reasons why South Africans want Cypriot permanent residency: 1. Permanent residency for the whole family is secured in two months. 2. It’s the only programme in Europe where three generations on the same family line all secure permanent residency on the same application, including both the parents and the parents-in-law. 3. All dependent children up to the age of 25 also automatically qualify. 4. The permanent residency permits are for life for everyone and they automatically renew. 5. You can rent the property out for the shortterm holiday market or long-term letting, thereby earning an attractive Euro-based income. 6. You only need to visit Cyprus one day every second year for the residency permits to remain valid. 7. There is no inheritance tax, so on your death you can dispose of your assets to your loved ones without having to pay the Cypriot government any death duty. This is very advantageous for legacy planning.

Protect yourself, your family and your assets from unpredictable events by taking advantage of the opportunity to secure permanent residency in Cyprus. Think about obtaining permanent residency as guaranteeing your family’s future. An astute offshore property investment that works for you in the short, medium and long term is the achievement of a lifetime. In Cyprus, investing in the Fast Track Permanent Residency Programme not only makes financial sense, but will tangibly benefit your immediate family. Can you afford not to take advantage of this while the programme is still open? Cypriot Realty, a South African marketing company, is a pioneer in actively and consistently promoting property opportunities primarily in Cyprus. They have been doing this successfully from their Cape Town and Sandton offices since 2008. As a result, the company is recognised and respected as Southern Africa’s authoritative investment specialist for promoting Cyprus as an ideal destination for acquiring permanent residency/citizenship, property investment, immigration/retirement and starting a Europeanbased business. Contact us for a confidential meeting to discuss how we can help you realise you and your family’s Plan B in Europe.

South Africa’s Cyprus specialists since 2008.

We have offices in Sandton, Cape Town & Cyprus

Contact us. www.cypriotrealty.com

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Nothing is than a m more expensive issed op portunit y!


OFFSHORE SUPPLEMENT

30 June 2019

MICHAEL MOYLE Head: Multi-Asset, Prudential Asset Managers

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damage global expansion. Aside from trade frictions, the slowdown is expected to be cushioned by the central bank response. The US Federal Reserve said it would pause its projected interest-hiking cycle, therefore keeping US interest rates lower for longer than investors had previously expected. The European and Chinese central banks, meanwhile, have introduced new stimulus measures, and the UK and Japan have continued with their easy monetary policies. These measures all helped to lift investor sentiment, buoying equity and bond markets alike. Investment opportunities Against this backdrop of ‘lower interest rates for longer’, the biggest opportunity we see globally is for investors to continue to take advantage of the high risk premium available from global equities compared to bonds and cash. This remains substantially above historic norms on the back of extraordinarily low

government bond yields. It makes sense for investors to avoid cash and global government bonds, especially those in the UK, EU and Japan where yields remain at exceptionally low levels. US Treasury yields are more attractive, but still not appealing compared to those from equities. Consequently, our house view portfolios are underweight global government bonds. We are instead holding US and European investmentgrade corporate bonds. These assets are slightly cheap as of April 2019 and have the potential to deliver stronger returns going forward now that the US interest rate hiking cycle is on hold. In contrast, we have not been holding high-yield corporate bonds as they are less attractive on a risk-adjusted basis. Meanwhile, we are overweight global equities as a whole, given the very high risk premium available. Emerging markets and currencies have underperformed developed markets, and continue to be especially well valued on many measures. As such,

we are overweight selected emerging markets, such as South Korea, Indonesia and China. Because the US market is relatively expensive and other markets offer better value, we are underweight US equities. We prefer the global banking sector, which has underperformed the broader market, as well as certain developed markets where equities are undervalued but fundamentals for earnings growth remain positive, including Germany and Japan. These overweight positions are financed primarily by an underweight in global bonds, as well as US equities to a lesser extent. Finally, we would also opt to be overweight global equities compared to South African equities in portfolios where total equity exposure is constrained, such as Multi-Asset LowEquity Funds, which are limited to 40%. According to our valuation-based view, some other emerging markets are cheaper and offer better value than the local market, despite it also being valued attractively on a historic basis.

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o far in 2019 we’ve seen a slowdown in global growth across the major economies and, as in the past, a central bank response of additional monetary stimulus. Although US Q1 2019 GDP growth surprised on the upside at 3.2% (q/q annualised), this was due to an improved trade surplus and higher inventories, short-term factors that masked drops in fundamentals like consumer and business spending, as well as weaker housing investment and declines in manufacturing and industrial production. In April, the IMF revised its 2019 global growth forecast down to 3.3% from 3.5% previously, as the EU, Japan and China also showed fundamental slowing despite some positive data. Additionally, one of the main risks to global growth prospects (also cited by the IMF) has been the ongoing trade tensions between the US and China, which have already impacted growth – to a relatively small extent so far, but threatening to widen into a full-blown war that could further

EXCELLENT VALUE OFFSHORE, DESPITE SLOWING GROWTH

Why limit yourself to only 1%? Discover the full picture by investing offshore with Allan Gray and Orbis. Most investors tend to focus their attention on seeking opportunity locally, but with South Africa representing only around 1% of the global equity market, we understand the importance of seeing the full picture and unlocking investment opportunities beyond the local market. That’s why Orbis, our global asset management partner, has been investing further afield since 1989. Together we bring you considerably more choice through the Orbis Global Equity Fund and Orbis SICAV Global Balanced Fund.

Invest offshore with Allan Gray and Orbis by visiting www.allangray.co.za or call Allan Gray on 0860 000 654, or speak to your financial adviser.

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.

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OFFSHORE SUPPLEMENT

30 June 2019

SANGEETH SEWNATH Deputy MD, Investec Asset Management

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hile most investors understand the compelling reasons for investing offshore – which include diversification benefits, reduced emerging market and currency risk, and maintenance of ‘hard’ currency spending power – they tend to lose sight of the fact that offshore is only one component of their overall portfolio. Therefore, their offshore investments must be considered holistically, together with their local investments. The currency effect Studies have shown that when considering the historical returns of foreign investments, the impact of the exchange rate is uncertain and volatile, and that when measured over shorter time horizons, the exchange rate

CONSIDER YOUR PORTFOLIO HOLISTICALLY WHEN INVESTING OFFSHORE

can have a significant impact on the investment return and, as we illustrate below, the risk in rand. By simply looking at offshore investments in a dollar context, the overall picture – and accordingly, the appropriate portfolio construction strategy – is skewed from a South African investor’s perspective. Figure 1, a simple risk return scatterplot, illustrates this point. If you compare the dollar returns and standard deviation over ten years of a money market portfolio versus a bond, multi-asset and equity portfolio, the chart demonstrates the expected traditional banana curve (efficient frontier), with the money market portfolio in the lower left corner (lowest return at lowest risk or volatility) and the equity portfolio in the top right corner (highest return but with the concomitant highest volatility).

FIGURE 1: USD RETURNS AND STANDARD DEVIATION OVER 10 YEARS

Source: Morningstar and Investec Asset Management calculations. As represented by ICE BofAML USD Overnight Offer TR USD; FTSE WGBI USD; 60% MSCI ACWI, 40% WGBI; and MSCI ACWI NR USD respectively over ten years to 31.03.19.

FIGURE 2: RAND RETURNS AND STANDARD DEVIATION OVER 10 YEARS

Source: Morningstar and Investec Asset Management calculations. As represented by ICE BofAML USD Overnight Offer TR USD; FTSE WGBI USD; 60% MSCI ACWI, 40% WGBI; and MSCI ACWI NR USD respectively over 10 years to 31.03.19

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times, offshore equity markets are Next, compare these same four likely to perform well, bonds will portfolios in rand rather than dollars, be the losers and the rand would as illustrated in Figure 2, and the strengthen (resulting in a currency traditional efficient frontier is thrown loss on the offshore portfolio). off with an unexpected clustering. The opposite also holds: in ‘tough’ What the chart illustrates is that over times, equities perform poorly, ten years the bond and money market offshore bonds gain and the rand portfolios deliver the lowest returns tends to weaken as you would expect but, (resulting in a counterintuitively, they do currency gain so at higher volatility than YOUR RISK on the offshore the multi-asset and equity REDUCES portfolio). In portfolios! WHEN YOU’RE summary, rand This illustrates that depreciation adds the simple conversion INVESTED IN to the offshore from rand to dollars can AN EQUITY investment’s add in the region of 16% OR MULTIreturn calculated volatility to your portfolio. in rand, and rand So, when it comes to ASSET FUND appreciation offshore investment, as OFFSHORE detracts from the important to the offshore overall return. asset class decision is the We believe that offshore risk in taking your money offshore investors need to look past the (i.e. the currency decision). And the shorter-term movements of the evidence further suggests that your risk reduces when you’re invested in an currency. Furthermore, they should look to global equities equity or multi-asset fund offshore, as or high-equity global multiyour portfolio would benefit from the asset solutions with long-term diversification effect. track records that have proven their mettle through investment The performance of the cycles, such as the Investec rand is a key consideration Global Franchise Fund and the The rationale is actually very simple: Investec Global Strategic Managed offshore equities and the rand tend to Fund respectively. move in opposite directions. In ‘good’


OFFSHORE SUPPLEMENT

30 June 2019

INVESTORS ARE CAUTIOUSLY OPTIMISTIC GLOBALLY: SURVEY High net worth individuals and business owners globally are optimistic and looking for opportunities to invest as markets rebound in 2019, according to UBS Global Wealth Management’s new quarterly Investor Sentiment survey.

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he survey, which polled more than 3 600 wealthy investors and entrepreneurs in 17 countries in March this year, points to a rebound in bullish sentiment as markets recovered from the late2018 slump. While respondents held a large proportion of their assets in cash, many expressed willingness to invest it, results show. Fifty-one percent of investor respondents were optimistic about the global economy versus 21% who were pessimistic. Business owners were especially positive, with 62% optimistic and 15% pessimistic. Even more – 60% of investors and 68% of business owners – expressed optimism on their own region’s economy. Investors were also bullish on stocks. Fifty-six percent expressed optimism on stocks in their own regions versus 49% on stocks globally. In addition, 74% saw recent market volatility as an investment opportunity, compared with 67% who were still concerned about volatility witnessed in the fourth quarter of last year. Forty-two percent of investors planned to invest more in the next six months versus 17% who planned to invest less. Sustainable investing was also cited as a growing interest, making up 27% of portfolios versus 22% five years ago. Business owners were equally bullish. Globally, 74% were optimistic about their business; 37% planned to invest more versus 10% who planned to invest less; and 31%

intended to hire more over the next 12 months versus 12% who intended to downsize. Domestic concerns and cash holdings remain elevated On the negative side, investors expressed worries about domestic issues. Some 44% cited their country’s politics as a top concern and 40% cited their national debt. Investors’ cash holdings also remained high. On average, 32% of portfolios globally were allocated to cash. US and Swiss investors’ cash holdings were lower (23% and 31%, respectively). Holdings in both Asia and Latin America were 36%. In Europe, they were 35%. However, US investors were also least likely to invest more, at 26% of respondents, while Latin American and Asian investors were the most likely, at 66% and 54%, respectively. Paula Polito, Client Strategy Officer at UBS Global Wealth Management, says, “Cash is a safe asset for a liquidity strategy but a risky one for longevity. Right now, we see high levels of cash globally. This is a good time for investors to consider a more diversified portfolio.” Regional findings and recommendations Americas: US investors exhibited the biggest risk of home bias, with 56% optimistic about their own region’s economy versus 37% about the global economy – although 56% were also concerned about their

country’s politics and 49% about the national debt. Conversely, Latin American investors appeared less likely to exhibit home bias, with 78% optimistic about the economy both globally and in their home region – although concern about national politics was also high at 63%, behind inflation at 67%. According to UBS Global Wealth Management’s Chief Investment Office (CIO), while US investors have benefited especially from over-allocating to domestic stocks in recent years, this home bias could hurt returns going forward. US stocks are priced in line with long-term averages, but international equity markets are more cheaply valued. Asia: Asian investors cited fears about trade wars and a regional slowdown in China as their prominent concerns, at 46% and 43% of respondents, respectively. However, Asian investors still showed a risk of home bias, with 59% optimistic about the global economy versus 66% about their region, amid strong performance in China in particular. When deploying cash into equities, CIO recommends investors diversify beyond China into other regional markets with catch-up potential. Europe: European investors have been beset by disappointing growth, political uncertainty and weak financial market returns. They also have some of the highest holdings in cash. But once they have

sufficient cash to meet their shortterm liquidity needs, we believe there are better ways for them to protect and grow their wealth. To access compelling potential longterm returns, investors in Europe and elsewhere can look to a fully sustainable portfolio as a core solution, diversified globally and by asset class. Switzerland: Investors in UBS’s home market have one of the lowest levels of optimism but also one of the lowest risks of home bias, with 40% optimistic about the global economy versus 41% about Switzerland. Although this dynamic is understandable given the muted potential returns on offer in Swiss assets, Swiss investors can help guard against downside by focusing on high-quality dividends within Swiss equities, as well as diversifying beyond domestic assets. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, says, “’Buy local’ works well for vegetables, but we are more optimistic about the global economy and this survey confirms investors sometimes focus too much on their home region. Diversification is still the best way to access opportunities and side-step domestic risks.” Christian Wiesendanger, Head of Investment Platforms and Solutions at UBS Global Wealth Management, says, “We have seen significant investor interest in multi-asset mandates and other diversified solutions as markets recover. Most recently, our 100% sustainable cross-asset portfolio surpassed $5bn in assets globally. Investors should continue to look past their favoured asset classes and countries for opportunities as the global business cycle advances.” About the survey UBS surveyed 3 653 investors and business owners with at least $1m in investable assets (for investors) or at least $250 000 in annual revenue and at least one employee other than themselves (for business owners), from March 10-28, 2019. The global sample was split across Brazil, China, Germany, Hong Kong, Indonesia, Italy, Japan, Malaysia, Mexico, Philippines, Singapore, Switzerland, Taiwan, Thailand, the UAE, the UK and the US.

WWW.MONEYMARKETING.CO.ZA 23


INVESTING

30 June 2019

PETER ARMITAGE CEO, Anchor

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outh Africa voted on 8 May, in what was probably the most important general election since the dawn of democracy. Surprisingly, from the data, voter turnout was very low at 65.99% of the total 26.8m registered voters. Julius Malema’s EFF has become the official opposition in three provinces and grown to 10.8% nationally, but its performance was disappointing relative to what some pollsters (and the party) had forecast – a possible reason being the far lowerthan-expected youth turnout (the EFF’s biggest support base) vs older voters. The ANC garnered a majority nationally as well as in all provinces, except the DA-led Western Cape, meaning that Malema’s mooted pre-election role as kingmaker is no longer relevant. In terms of parliamentary seats, there were 400 seats up for grabs. We highlight that the top-five parties (ANC, DA, EFF, IFP and Freedom Front Plus) together received 382 seats in this election, with the ANC and the DA losing 19 and five seats, respectively, and the EFF and FF Plus (a surprise performer) gaining 15 and 6 seats each, respectively. The national assembly now has 14 political parties represented.

Elections 2019: Where to from here? The final vote tally means Anchor’s and state capture. More importantly, base-case scenario, in which we it will be a truer test of his ability to expected the ANC to get 58%-plus execute on his promises to rid the of the vote, has materialised, with country of rampant corruption. the ANC winning 57.5% of the This, in turn, will be positive for national vote. We view the results as the local economy and we are likely providing Ramaphosa with a mandate to see more inflows of foreign direct to continue his reform and antiinvestment and local investment corruption drive, which is positive as ANC policies are (hopefully) for SA investor confidence. We clarified, especially those related to believe the current ‘repair’ scenario expropriation without compensation, should maintain its momentum, the nationalisation of the SA Reserve with Ramaphosa Bank, etc. This emboldened and means a more certain WE RECOMMEND seen as having future overall, with received the HIGHER EXPOSURE Ramaphosa perhaps required mandate TO SA INC. SHARES serving two terms, from voters to boosting the JSE solidify his position and steer ahead (bar any external offshore factors) unfettered with his anti-corruption and the rand strengthening. Hence, and growth agenda. we recommend higher exposure to Pivotal now is for him to show SA Inc. shares, especially quality leadership with the appointment counters where foreigners take their of his new cabinet, which will be exposure – FirstRand, Standard the first key message he sends to Bank, Foschini, DisChem, Bidvest, global and local investors. It is by RMI, AVI, Coronation, Shoprite and all accounts also set to be cut from Clicks. Property shares are likely to the bloated cabinet of the Zuma do well, while more cyclical counters years, with fewer Zuma cronies such as Motus, Imperial and Super or compromised individuals. This Group could also rise materially as should see him make headway in expectations of economic growth managing divisions within the ANC, improve. Rand-hedge shares as well as gaining the support of the would likely underperform with a ANC caucus and the NEC, as he strengthening currency. intensifies the fight against corruption While we are maintaining meaningful exposure to SA Inc. shares, we are also retaining a diversified portfolio. Importantly,

24 WWW.MONEYMARKETING.CO.ZA

investors should be ready to react as the SA political drama unfolds. SA has serious structural issues and the advances made in solving these are equally important. It should be borne in mind that many of the factors impacting equity markets are global in nature and the SA political outcome is just one of the contributors. While we continue to have a positive stance on local equities, the future is far from certain despite our base-case election scenario unfolding. Being nimble is as important as it has ever been, and we will be quick to act in the best interests of our clients. Investors in the SA market have been going through emotional turmoil for a while now, with worsening local news and a difficult operating environment for businesses (although the global backdrop had proved supportive). Hence, sectoral exposure is increasingly critical, and these could be materially differentiated over the coming months. However, we believe an emboldened Ramaphosa could lead to more certainty as well as more definitive policy measures, which are likely to boost the flagging SA economy.


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TECHNOLOGY

30 June 2019

KOBUS BARNARD CEO, Allegiance Consulting

The world is changing, and the change is accelerating… The financial services world is experiencing change at a breakneck pace. Traditional business models are under pressure in a world of greater complexity, transparency and accountability. The changing landscape will highlight the absence of value for advisers who operate on a product focus and who find their legitimacy in picking funds. As everyone is coming to grips with change and is pushed off balance for a moment, this creates opportunities for the brave. A fresh start can be a good thing According to Dalbar (2016), in Dalbar Quantitative Analysis of Investor Behaviour, the 20-year annualised equity return was 8.19%, while the 20year annualised equity return for the average mutual fund investor return was only 4.67%. A gap of 3.52% per year. That gap is not trivial.

Creating a thriving financial planning business According to Dalbar, the gap is directly attributable to: • bad investor behaviour, and • cost. Goal-based financial planning will address some of the inefficiencies relating to investor behaviour. Why goal-based financial planning matters According to David Blanchett, Head of Retirement Research, Morningstar Investment Management, goal-based planning can lead to a 15% increase in utility-adjusted wealth when compared to a traditional approach to financial planning. So what is goal-based financial planning really? Goal-based financial planning is a deeply personal experience for the client. It talks to their goals and dreams. It talks to what is important to them. It facilitates meaningful discussions with the client. Goal-based planning is a financial planning method to help clients: • prioritise their financial goals • find an optimal plan to fund them, and • find the optimal plan to protect the achievement of those goals in the context of the client’s current financial landscape. Financial planning is the design for the bridge between a client and his/her goals, and the product is

CLAIRE WOOD Managing Director, Innosys

F

or most insurance businesses, but especially advisers, the kinds of technology linked to the big-name InsurTech disruptors can be hugely daunting. After all, the closest most of us get to artificial intelligence is trying to persuade Siri to correctly dial a phone number for us. If you’re awake in the early hours worrying about the approaching end of the warm-blooded financial adviser, your unease probably isn’t limited to the looming tech disruptors. Everywhere you turn there is a deluge of advice on digitising your business, much of which comes with a thinly veiled threat that failing to do so means you’ll never be able to keep up

EVERYWHERE YOU TURN THERE IS A DELUGE OF ADVICE ON DIGITISING YOUR BUSINESS

the building blocks of the bridge. A client may wish to focus on saving for education, a big purchase, understanding the implications of his/her debt, and retirement. Goalbased financial planning requires a contextual understanding of the sequence and impact of the needs of a client to ensure the optimal allocation of resources for each specific goal in the context of their available resources. Enabling goal-based financial planning with a system that understands you As with clients, your financial planning system can either enable goal-based financial planning or make it impossible to build a goal-based financial planning practice. The system should: • provide a holistic view of the client’s goals and needs • be flexible enough to facilitate co-creation of the client’s plan • provide a user experience that enables meaningful discussions with the client • be extremely sophisticated in its ability to model the client’s financial future, and • be intuitive and simple to use. Change your system – change your life We know that change can be scary. Pick a system that helps you elevate your business. Pop in for a cup of coffee or email us at avalon@allegiance.co.za to see something special.

Complete focus on the customer's real needs with regulatory compliance. Employing a room full of PhD computer scientists isn’t an option but neither is continuing to run your business on spreadsheets. So, what is an adviser to do? 1. Read. TechRepublic, Wired and Forbes are good sources of easily digestible info. If you are technically inclined, look at online courses from Pluralsight, Coursera or Udacity. You may only be exposed to leading technology through your underwriters’ systems but understanding the concepts will put you ahead. 2. Name the problems you hope to solve with technology before implementing anything. When you have a hammer, everything looks like a nail. 3. Know that many of these problems will not need a tech solution. A good review of your business processes is often enough. 4. If you can’t be objective about

26 WWW.MONEYMARKETING.CO.ZA

5. 6.

7.

8.

the previous point, engage professional advice before spending a small country’s GDP on a doomed IT project. Start small. No, smaller. Smaller still. Good, start there. It must be measured to be managed: Consider which business metrics will tell you if things are improving after the technology solution has been implemented. Be diligent about measuring these and ruthless when you aren’t seeing returns. Be completely honest about your internal capabilities and open to external help. While you may be comfortable managing mainstream technologies within your business, newer ones will call for skills you may not yet have. Be a savvy tech consumer. If there are technologies that will differentiate your business or that you believe should work differently to what’s available off the shelf,

these are the ones to build or buy outright. For everything else, look at providers with rental or subscription offerings. 9. Make peace with the Cloud. Using on-demand software services will mean your data is stored or processed on servers that you don’t own or control. Know how data can be protected in the Cloud, what will be legally required of you when collecting and transmitting data, and then let go. 10. Don’t be sulky about the InsurTech disruptors. Look fairly at what consumer problems these businesses are solving and use that insight to improve how you operate. Despite how they are positioned in the media, disruptors really aren’t about technology. They are about complete focus on the customer’s real needs. And that’s a great guiding principle when trying to make sense of technology in your own business.


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RISK

30 June 2019

A day at the polo

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oneyMarketing attended the international polo match that pitted South Africa against Argentina last month at the Inanda Club in Sandton as a guest of its headline sponsor, Aon South Africa. The day began with the Inanda Development Cup game, featuring upcoming South Africa stars who have risen through the ranks. The game, between the Aon Red team and the Aon White team, resulted

Novice players compete for the Inanda Development Cup

in a fierce match that ended with a score of 4-2 in favour of the Aon White team. The excitement surrounding the 90-minute international game gained steam early, with Argentina and South Africa going head to head in the first chukka. The momentum of the match kept building with each team defending and preventing their rivals from scoring goals. By the end of the final chukka, the scoreboard read 8-8, which led to a round of sudden death. Taking full control, Lance Watson concluded the extra chukka by scoring the winning goal that lead South Africa to victory. “Of great importance is the strong development component of this invitational,” says Leo Morwe, Chief Human Resources Officer at Aon South Africa. “Not only is it giving our players international exposure, but it also introduces young, up and

coming talent to the game, providing an important building block in the professional careers of the players. As an organisation, we believe in empowering this possibility. Around the world our mission is to empower economic and human possibility for our clients, colleagues and communities, which is fundamental to the growth of every economy in the world.”

IMAGES: RUSSELLROBERTSPHOTOGRAPHY.COM

Above and below: South Africa defeats Argentina 9-8

An Aon Expert Broker BY YOUR SIDE Expert Brokers in risk management and insurance broking solutions, by your side when you need us most. HOUSEHOLD & MOTOR | BUSINESS | HEALTH | RETIREMENT

0860 100 404 | www.aon.co.za Aon South Africa (Pty) Ltd is an Authorised Financial Services Provider | License #20555.

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2019/05/24 11:36 AM


EMPLOYEE BENEFITS

30 June 2019

SHREEKANTH SING Technical Legal Adviser, PSG Wealth

How employee benefits boost business owners and employees

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ffering an employee benefits (EB) package benefits the employer as well as the employee. For the employee, it typically means they will be saving regularly for retirement and they will have medical and risk benefits in place. For the employer, employee benefits have been shown to reduce absenteeism, increase productivity and reduce staff attrition. Not to mention that an attractive EB package may be crucial if you want to attract top talent to your business. Recent technological and legislative developments mean that EB advisers and product suppliers are increasingly able to provide individual employees with more personalised advice that takes their retirement savings, medical aid and group risk benefits into account. EB advisers and product suppliers are also investing a lot of effort into ensuring members are educated and understand the impact of their decisions. Components of a typical EB offering

1

Retirement fund (pension, provident fund or group retirement annuity) Typically, an employer offers a pension, provident or group retirement annuity fund. Contributions are usually made monthly to the employee’s retirement

savings, according to a percentage of their annual salary, for example 10%. Contributions must be invested in line with Regulation 28 of the Pension Funds Act and are meant to generate stable growth over the long term, which in turn aims to provide for employees when they reach retirement. Major benefits of these funds include that investment returns within these funds are tax free and contributions to the fund are tax deductible.

2

Group risk benefits Group risk products are designed to insure employees and protect them and their families in the event of long-term illness or death during their working lifetime. • Group life benefits Group life benefits automatically apply to all employees who are eligible to be members of the retirement fund, as it is run on a pooled-risk principle. This means individuals do not need to undergo medical underwriting to be covered up to the predetermined free cover limit. Because of this pooling of risk, group risk benefits are often cheaper than individual life assurance premiums, although it will vary from company to company based on their company’s risk profile. For example,

a mining company would be considered higher risk than an architectural firm. • Income or capital disability Most companies also include disability benefits as part of their employee benefit offering. These can either be in the form of a lump sum (also known as a capital disability benefit) or an income continuation benefit. -- Lump sum disability benefits pay a lump sum that can, for example, be used to settle debt or make alterations to a home if specialised care is needed. -- Income protection benefits pay a percentage of the employee’s monthly salary (the industry standard is 75%) until the earlier of recovery, death or retirement. -- To qualify for the lump sum disability benefit, the disability must be deemed to be ‘total and permanent’, while in the case of income continuation disability benefits, the employee needs to be unable to pursue their own career (although this definition usually broadens to ‘own or similar’ after a period of two years). Continued on page 30

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EMPLOYEE BENEFITS

• Critical illness Critical illness can have long-term consequences for the financial well-being of a family. This benefit covers most severe illnesses and dread diseases like cancer, heart disease and stroke, and is usually expressed as a multiple of salary, as in the case of death benefit cover. The lump sum can help offset any shortfall on your employee’s medical aid, help them access the best medical technology, or be used to offset additional expenses or reduced income because of lifestyle changes. • Funeral cover Many employers provide funeral cover in addition to death and disability benefits. This type of cover is usually paid out quickly (within 24 to 48 hours).

30 June 2019

4

Extra benefits Employers can choose to add even more options to their offering. These could include: • Education benefits – Cover to help meet educational and living expenses for children • Gap cover – General practitioners, specialists and private doctors often charge higher rates than what the medical aid covers. The costs quickly add up when individuals are hospitalised, and gap cover is designed to help cover any shortfall • Employee wellness programmes –These programmes typically offer employees support to ensure their physical and psychological

well-being, and to prevent issues from affecting their productivity. They aim to help employees manage personal and work-related issues and stress, and can include psychological counselling and financial and legal support. Employee benefits can play an important role in encouraging good financial behaviours and promoting a savings culture and financial inclusivity. They are an investment in your company and employees’ well-being, and should be reviewed in collaboration with an EB adviser as part of your annual business plans.

3

Medical aid Access to quality private healthcare can make a major difference to the lives of your employees. Since it helps to eliminate the long waiting times associated with public health facilities, it can also enhance overall productivity. Most employers offer a choice of a few different plans, and selecting the right one is important. Medical aid tax credits (with amounts defined by Government) reduce the normal tax a person pays, thus helping to make medical aid somewhat more affordable.

JOHN ANDERSON Head: Strategic Development, Alexander Forbes Group

F

inancial stresses are becoming an enormous problem for South Africans. “Our research has found that on average, employees are spending between 13 to 20 hours a month worrying about finances,” says John Anderson, Head of Strategic Development at Alexander Forbes. Anderson outlines five ways to improve the financial well-being of South Africans and actions employers can take:

1

Use digital innovation to improve employee engagement Our research shows that until now, most processes companies use when onboarding individuals do not facilitate good decision-making. For example, on joining a new employer, most employees select the lowest contribution to their retirement fund. This is often because they do not receive easily understood and accessible information when they join. The same is true while they work for, leave or retire from the company. The good news is that we have found that when companies engage with employees on their benefits, giving them the right information and tools, their employees make better decisions. This means: • giving them easily understood and accessible information • making information relatable by predicting retirement income in today’s terms • connecting people with their future selves because they tend to expect instant gratification and underestimate their future needs. Where companies have taken this approach, we have seen employees increasing their benefits

30 WWW.MONEYMARKETING.CO.ZA

Ways employers can help ease employees’ financial pressure and selecting higher contribution rates to save for retirement.

2

Engage proactively with employees at key life events Our research shows that people need adequate time to engage with the benefit decisions they need to make when joining, working for, leaving or retiring from a company. Poor decision-making usually results from individuals being rushed to make choices at these critical moments. For example, when buying a new house, an individual would typically research options extensively, look at many different houses and often spend a significant amount of time before making a decision. However, when joining a new employer, a new employee is often rushed to decide within a few minutes how much they should contribute to their retirement fund – even though the decision has significant long-term implications. Therefore, engaging earlier with individuals is important to facilitate better decision-making. When joining an employer, it requires a proactive approach to provide information upfront so that on the first day at work new employees can make informed benefit selections.

3

Optimise the role of the human resources department An employer’s HR department gives critical support to employees on company benefits. However, given the significant changes to the regulatory environment and other demands, we have found that HR departments need more support to make it easier to provide the right information to employees.

This requires: • using digital tools to reduce the administrative burden • obtaining the right support for areas outside their expertise, such as investment portfolio selection.

4

Deal with barriers to financial well-being Employers need to pay attention to factors that hamper employees’ ability to make good financial decisions. Over-indebtedness and a lack of emergency savings have a negative effect on their ability to preserve their retirement savings. Not only do these factors affect their financial wellbeing, but they also result in reduced productivity and engagement. Employers need to look holistically at their employee benefit programmes and incorporate all the elements – not just the traditional employee benefits – to make sure the whole arrangement works well.

5

Use data, analytics and insights to optimise the use of employee benefits Data, analytics and insights give companies and employers more information about employees’ financial well-being and track the results so that they grow more. We can use sophisticated data analytics to gain insights into the areas affecting employees’ financial well-being. By applying this knowledge, employers can focus their efforts on key interventions to improve their employee benefit programmes in order to achieve better outcomes.


EDITOR’S BOOKSHELF

30 June 2019

BOOKS ETCETERA

A BRIEF GUIDE TO SELF-HELP CLASSICS BY JAMES M RUSSELL

THE 30 DAY MBA BY COLIN BARROW

This is a concise and insightful guide to 70 of the most influential self-help books ever published – from Dale Carnegie’s How to Win Friends and Influence People, which has sold over 30 million copies to date, to the mind management programme of Professor Steve Peters’ The Chimp Paradox. The titles include classics on achieving success, confidence and happiness, mindfulness, how to change your life, selfcontrol, overcoming anxiety and self-esteem issues, and stress relief – making for an entertaining, accessible companion for both readers of self-help books and sceptics alike. The chronological arrangement of the titles illustrates the intriguing story of how early self-improvement titles were followed by increasingly personality-based, materialistic titles and reveals how breakout classics often influenced other titles for decades to come. Each book is summarised to convey a brief idea of what it has to offer the interested reader. There is also a ‘speed read’ for each title, delivering a quick sense of what each writer offers and a highly compressed summary of the main points of the book in question. The book is a work of reference to dip into, that acknowledges that some of the most powerful insights into ourselves can be found in texts that aren’t perceived as being ‘self-help’ books, and that wisdom and consolation can be found in the strangest of places.

If you want to accelerate your career development and transform your skillset, but without the price tag and two-year commitment of the MBA, this is the book for you. The 30 Day MBA covers the 12 core disciplines of business: accounting, finance, marketing, organisational behaviour, business history, business law, economics, entrepreneurship, ethics and social responsibility, operations management, research and analysis and strategy. It provides the tools and techniques you need to seize business opportunities and implement strategies successfully. Complex concepts are explained in simple and practical terms, helping you to apply high level concepts to the real-life world of business. The 30 Day MBA also contains insightful case studies from leading organisations including IKEA, Cisco, Cobra Beer, Heinz, Shell, Hotel Chocolat and Chilango, to help keep you right up-to-the-minute with current trends and inspire you to explore new concepts. This book also equips you with essential hard knowledge, but also helps you understand how business and current thinking is shifting in today’s turbulent global markets, and broadens your mind with the knowledge and confidence to excel in a competitive career.

INVESTED: HOW I LEARNED TO MASTER MY MIND, MY FEARS AND MY MONEY TO ACHIEVE FINANCIAL FREEDOM AND LIVE A MORE AUTHENTIC LIFE (WITH A LITTLE HELP FROM WARREN BUFFETT, CHARLIE MUNGER AND MY DAD) BY DANIELLE TOWN, PHIL TOWN

SUDOKU ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAINS THE NUMBERS 1 TO 9.

In this handbook – a blend of Rich Dad, Poor Dad and The Happiness Project – Danielle Town shares her yearlong journey learning to invest, as taught to her by her father, investor and bestselling author Phil Town. Growing up, the words ‘finance’, ‘savings’, and ‘portfolio’ made Danielle Town’s eyes glaze over, and the thought of stocks and financial statements shut down her brain. She spent most of her adult life avoiding investing – until she realised that her time-consuming career as a lawyer was making her feel anything but in control of her life or her money. Determined to regain her freedom, vote for her values with her money, and deal with her fear of the unpredictable stock market, she turned to her father, Phil, to help her take charge of her life and her future through Warren Buffett-style value investing. Over the course of a year, Danielle went from avoiding everything to do with the financial industrial complex to knowing exactly how and when to invest in wonderful companies. In Invested, Danielle shows you how to do the same: how to take command of your own life and finances by choosing companies with missions that match your values, using the same gold standard strategies that have catapulted Warren Buffett and Charlie Munger to the top of the Forbes 400.

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