INVESTING
30 June 2019
HAYLEY BROWN Executive: Business Development, PPS Investments
Blending passive and active investing
W
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
G
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
8 WWW.MONEYMARKETING.CO.ZA
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.”
