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30 September 2017 |

First for the professional personal financial adviser



MoneyMarketing's guide to investing offshore in uncertain times

page {I}



A fair and sensible consideration of passive investing will enable one to create the best possible outcome for clients Page 17

Financial advisers have a critical role to play in raising public awareness of the importance of income protection Page 20

The ‘new normal’ for SA



ast month’s outcome of the parliamentary no-confidence vote in President Jacob Zuma was seen by some as a sign that his grip on the ANC is slipping – something that could restore investor confidence in South Africa’s ailing economy. Zuma managed to secure 198 votes to the opposition’s 177 in the no-confidence motion held by secret ballot, as loyal ANC MPs rallied to support him. There were nine abstentions. Granted, the result was closer than anyone expected, with the opposition Democratic Alliance proclaiming that Zuma was now “mortally wounded and his party in tatters” and that despite his “slender victory” the death of the ANC had been signaled. Nothing, however, could be further from the truth. Moreover, the outcome of the noconfidence debate is unlikely to change the economic outlook for the country. Rather, political factionalism within the governing party will continue to generate policy and regulatory uncertainty until the ANC’s elective conference in December. “The chances are not good that the

structural reforms and policy certainty needed in SA can emerge in a period in which inevitably key political decisionmakers are more preoccupied with domestic politics, rather than with economic steersmanship and policy management,” says Raymond Parsons, Economist at the North West University School of Business and Governance. “Policy and political uncertainty should thus for the present be seen as the ‘new normal’ for South Africa and business strategies need to be adapted accordingly.” Parsons adds: “The economic outlook is therefore unchanged by the latest noconfidence vote in Parliament.” Peter Attard Montalto, Research Analyst at Nomura, believes Zuma will use this win as a new parliamentary mandate within the ANC and especially the ANC’s NEC to see down opposition and move forwards with his policy agenda in Government as well as politically to provide momentum for his faction and their campaign into the elective conference. “We retain the view that while December will be close and very hard fought, we still believe the Zuma faction will win.” Continued on page 2

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30 September 2017

Continued from page 1

Attard Montalto says he doesn’t agree with the view in part of the market that Zuma is now in a weaker position after this vote. “We think the vote will be viewed too much through the lens of the media, and public and foreign reactions, rather than how it will play in the ANC, especially at the key area above branch membership up through branch leadership, area and provincial leadership before one reaches the NEC. This is where December is won or lost ultimately.” Further votes of no confidence are unlikely to be attempted by the opposition now, and “further moves against President Zuma in the NEC are also unlikely. As such, President Zuma has a clean run until (if his faction wins in December), we see him stand down in H1 2018 at the behest of his own side to allow his successor to campaign into the 2019 election.” South Africa’s outlook for inflation and interest rates still appears benign, but it is unlikely that the growth rate for 2017 as a whole will be more than about 0.5%, increasing to about 1.1% next year, says Parsons. “Job losses continue to rise. Consumer and business confidence remain at low levels. South Africa is presently facing strong economic and political headwinds which need careful handling if collateral damage to the economy from political instability is to be minimised,” he adds. Attard Montalto believes SA is returning to a negative status quo with a deeply split ANC incapable of undertaking any reform or provision of regulatory or policy certainty. “As such, we see weaker Q2 growth numbers, increasingly weak fiscal numbers and a fragile Medium Term Budget Policy Statement (MTBPS) at the end of October, compound the downgrades path in the coming nine months. The failure of the vote even under secret ballot we think will maintain weak business and consumer confidence and so hold private sector investment back. As such we maintain our below consensus forecast of 0.2% for growth this year.” Parsons sees the MTBPS or ‘mini-Budget’, as the next major opportunity to boost certainty and credibility in policy.

“In a context of low growth and limited fiscal space, the next MTBPS has now become a major challenge for Finance Minister Gigaba. The financing and governance of state-owned enterprises like Eskom and SAA still pose high risks to the fiscal outlook. “It also remains within the domain of government to rebuild the trust and confidence needed to strengthen its collaboration with business and other stakeholders to get SA out of its present ‘low growth trap’, despite current political factionalism.” Absa’s Head of Investments, Armien Tyer, says that in the current economic climate, South Africans looking to invest should be “very prudent,” and stay focused. “In this environment, if anybody promises a return that doesn’t look real, be very wary.” He adds: “Although there are some bad things happening, the country is not yet at a point where it’s all fall down.” “This point would only be reached when the constitution is attacked for expedient ends.” He believes that both SARS and SA’s banking system are world class. “We must build on our institutions, not destroy them. When you think about it, this is what the ratings agencies are telling us. But for now, there is enough collective good in the economy to take us forward.” Tyer adds that it is increasingly difficult for investors to ignore the short-term noise. “This is the country of which we are citizens. Not being engaged is a weak option; investors and citizens need to become more activist, as corruption will prosper when good people turn a blind eye.”




oneyMarketing is a South African publication and as such, we like to include positive news about the country in our pages. I’ve recently been on the lookout for some good news, but needless to say, I haven’t been very successful. I think all of us know that nothing lasts forever – not even the bad times. This country will rise again; it might just take a while. The result of December’s ANC leadership election will bring some clarity about where we’re headed – but it’ll only be in 2019, when the next general election takes place, that a new mandate may be given to new leadership.  But for the foreseeable future, we can expect more job losses, little investor confidence and more social upheaval in the form of protests. It should not be surprising that South Africans are investing offshore in increasing numbers, as domestically-focused portfolios just do not provide an adequate risk-reward trade-off.  MoneyMarketing’s September Offshore Supplement aims to answer a lot of questions about investing globally. Local investors want to know how much of their portfolios should be allocated to offshore investment. In addition, many are undecided on the best way of investing: Should they physically take their money offshore? Or should they invest in randdenominated investment options? It's worth mentioning that foreigners are not as troubled as locals about our economy. (See page 15).  This issue of MoneyMarketing will be out by the time Statistics SA releases SA’s growth figures for the second quarter of 2017. I’m hoping for some good news: a GDP rebound by around 2.5% quarter on quarter. As I’ve already said, the bad news can’t possibly last forever.

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30 September 2017


How did you get involved in financial services – was it something you always wanted to do? I became involved purely by chance – it turned out to be a fantastic springboard. After I finished my honours degree, I applied for a job at FNB for a money market dealing position, which at that stage I knew nothing about. Within six months of joining and being placed on the ‘BA’ (banker’s acceptance) book, I was asked to join a team looking into the new field of financial engineering – which later turned into the ‘swaps and futures’ desk. What makes a good investment in today’s economic environment? Understanding the risk adjusted returns. Too many people are fixated with total return and do not understand the exposures they are accepting by chasing increased returns from sources that haven’t been explained. What was your first investment and do you still have it? It was a penny gold mining stock and it went insolvent – all I have is the lesson I learnt about doing some fundamental research before committing my capital.

What have been your best and worst financial moments? My best moment was working with the National Treasury on a road show to place the first SA Dollar-denominated Yankee Bond after the ’94 elections. I was able to place the bond at very favourable rates to international investors and raised a large sum of money for the government. My worst moment was during the Russian debt crisis of 1999/2000 when I bought an instrument (insurance) from a hedge fund in the USA to protect my offshore client investment book. When it came time to collect the payment on the hedge, the fund declared bankruptcy and I was left with the loss, despite having acted prudently. What important things will you teach your children about money? I will teach them two things. Firstly to deal with reputable people and institutions only, and secondly if something seems too good to be true – it usually is too good to be true.


UPS & DOWNS Standard Bank has reported an 11% increase in 2017 halfyear profit. Headline earnings per share came in at 746.4 cents in the six months to June compared with 671.2 cents the same time last year, despite difficult economic conditions. An interim dividend of 400 cents was declared – up 18% from 340 cents last year. Group return on equity also rose from 14.4% to 16.1% while the management of credit impairment led to an overall decline

in the credit loss ratio from 105bps to 96bps, the company said. Total income declined by 1% period on period to R49 336 million, driven mainly by weaker noninterest revenue which decreased 7%.

Unlisted clothing retailer Edcon has lost 485 000 credit customers in the past year. According to the company’s full year 2017 annual

report, as at March 25, it had 2.9 million accounts compared with 3.4 million a year ago. The number of credit customers has been decreasing since 2009, with declines speeding up since the sale of its book to ABSA in 2012. Since then, Edcon has lost almost one million credit customers. The group had 1 336 stores as at June 24 after cutting the number by more than 200 over the year.

VERY BRIEFLY The Hollard Insurance Group, South Africa’s largest independent insurer, has appointed Saks Ntombela as Group Chief Executive Officer. Ntombela will assume the role on 1 October, taking over from current CEO, Nic Kohler, who announced in January that he would step down after 10 years at the helm. Ntombela joined Hollard five years ago as head of its fledgling life and investments area, having previously served as Head of Retail Banking Product and Segments at ABSA. Prior to that, Ntombela held a number of executive positions at Nedbank, where he was most latterly responsible for the Bank’s retail business. A Bachelor of Science Mechanical Engineering graduate from the University of Natal, Ntombela is also a graduate of the University of Cape Town’s Graduate School of Business and has completed the Advanced Management Programme at Harvard Business School in Boston. Dr Katlego Mothudi took on the role of Managing Director of the Board of Healthcare Funders of Southern Africa (BHF) at the start of this month. Following an extensive recruitment and assessment process, Dr Mothudi, a qualified medical practitioner with a strong background in healthcare management and currently the Executive Head of Operations and Clinical Services at Sizwe Medical Fund, was selected. “The role of BHF and its members in achieving the global Universal Healthcare Coverage agenda is vital and will require strong and focused alignment among key stakeholders,” says Dr Ali Hamdulay, Chairperson of the BHF. “The appointment was the culmination of a rigorous succession planning process involving a comprehensive search for the right candidate to lead this process. As such, the BHF Board has full confidence in Dr Katlego Mothudi’s skills and ability to lead the BHF and its membership in navigating a highly complex but exciting journey ahead, not only here in South Africa, but in all eight countries where the BHF is represented.” Purple Group and Sanlam Investment Holdings (SIH), a wholly owned subsidiary of Sanlam Limited, have announced that SIH has entered into agreements to acquire a 30% stake in First World Trader Proprietary Limited, trading as EasyEquities. Says Charles Savage, CEO of Purple Group: “The EasyEquities transaction with Sanlam Investments provides our fintech winner with added capital, skills and the ability to continue on the path we’re on – aggressive growth in client numbers, products on the site for client benefit and a way for all South Africans to access the financial markets – in South Africa and excitingly also in the US. We also look forward to announcing our international growth plans where the collaboration with Sanlam Investments provides invaluable insights, guidance and access to various jurisdictions.”

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30 September 2017

RICHARD RATTUE Managing Director, Compli-Serve

Robotics set to narrow the ‘advice gap’


arketers love to divide the public into various socio-economic groups and as a result we find ourselves with terms called massaffluent, affluent, poor and a further niche known as the wealthpoor. Individuals in this group are typically earning salaries, but they do not earn enough to put away attractive sums for savings/retirement and therefore are potentially unattractive to a planning business that is charging by the hour. These individuals from the wealth-poor segment may find themselves adrift with few choices/options available in terms of their financial planning desires. This segment is typically thrust into a one-size-fits-all product structure, normally run by one of the larger institutions and while at least this is a home – so to speak – for their savings, it may not necessarily be the most appropriate or adequate destination, as no real sense of their circumstances is required. As a potential saviour to this situation, one can look at the increasing use of technology in the financial services space – and particularly robo-advice, seeing firms use an online portal to ask potential clients a series of questions and based upon responses, ever more sophisticated algorithms and models are used to make financial product recommendations. While these services have been around for some time, they have suffered an image of conflicts of interest, i.e. the firm that purchased the software for use has its preferred suppliers whose funds/products typically arrive at the top of the list for a client to engage with further. Basic algorithms and inadequate technology has also hamstrung these efforts in the past. From a regulatory perspective, there has been little recognition of robo-advice and this has created issues where a complicated advice process is required in terms of existing legislation, which is essentially overkill for the rather more simplistic product that lends itself to sales through the online channels. However, as they say, ‘times are a changing’. We have recently seen the Regulator release regulations that specifically recognise alternated advice/ robo-advice, which is effectively a nod to say robo-advice is coming here to stay and likely to grow in the future. We have seen an increasing number of firms offering it, either on local or offshore-based platforms with varying degrees of success. However, it is likely that once the RDR machine rolls forward over the next few years, and its effects start to bite, we will see more and more individuals being targeted by robo-advice platforms as a means of facilitating their investments, savings, retirement, etc. We, of course, must not forget that the iGeneration (a.k.a iGen) simply do not have the need to talk to anyone other than via an app, which is then used to facilitate just about anything, and of course, this will undoubtedly lead itself into the financial services space as iGen matures and has money to spare for savings. When I grew up, the machines all had red eyes and wanted to take over the world; however, we must not be afraid of machines, but rather work out ways in which they can enhance and bring efficiencies to service delivery, product design and the overall customer experience. The machines could yet save many people from falling into the advice gap.

Investors behave differently around large amounts Size matters, according to the latest findings from UK research business, Platforum.


latforum finds that when investors are investing larger sums they are: • More likely to seek advice • More likely to use a blend of passive and actively managed funds • More willing to pay for financial advice. But there is still a significant gap between what investors are willing to pay and what financial advisers currently charge. Jeremy Fawcett, Platforum Research Director says: “The proportion of British investors who claim to invest with no help or advice from experts continues to increase – up from 40% in November 2016 to 44% in May 2017. But our survey of investors suggests that purely DIY investors are investing smaller amounts. Only 16% of investors would contact an adviser if they were investing £20 000. However, when we asked investors how they would invest £200 000, nearly half told us that they would approach a financial adviser before making any investment decision.” Platforum asked investors to imagine how they would invest a windfall lump sum. The aim was to find out whether they would treat lump sums of £20 000 and £200 000 differently. The key findings were: Investors are more likely to seek advice if they are investing large lump sums • Nearly half of investors surveyed (46%) said they would approach a professional adviser as their first point of reference if they were investing £200 000. • In contrast, only 16% of investors would contact an adviser if they were investing just £20 000. One in ten (10%) say they would know exactly what to do without any external input.

Investors who are investing relatively small amounts are more likely to go directly to a provider or platform • 65% of investors would invest £20 000 themselves, either through a platform or directly with a provider, compared with 43% of investors investing £200 000 • 41% of those investing £200 000 would use an adviser – twice as many as those in the £20 000 scenario (21%). Use of active funds among investors is higher if they are investing smaller amounts • Investors are more likely to invest the whole lump sum in actively managed funds if they are investing £20 000 (35%). But only 22% would choose actively managed for investing £200 000. • Compared with investors in the £20 000 scenario, a higher proportion of investors (77%) in the £200 000 scenario would split their investment between active and passive funds. Investors are more willing to pay for financial advice when investing larger amounts. But there is a significant gap between what investors are willing to pay and what financial advisers currently charge. • A third (32%) of investors are willing pay for advice when investing a £20 000 lump sum. But this proportion increases significantly to 63% for investors investing £200 000. • Investors would be willing to pay £200 for financial advice about investing £20 000, i.e. 1% of the lump sum amount. • Investors would be prepared to pay a fee of £616 on average for advice about investing a £200 000 lump sum. This is more than they would pay for advice on the smaller lump sum, but at 0.3% of the capital is much smaller in percentage terms. • Both of these price points are significantly lower than the average 2.2% of portfolio value that advisers charge for initial consultations.




There’s a time to be bold and a time to be cautious. When opportunities abound, boldness can yield the best rewards. Which is why we offer investment solutions where we adopt a consciously bold approach to managing our clients’ money to yield a better return. The success of this confidence has been proven time and again, with our Sanlam Investment Management Balanced Fund outperforming the category average* and inflation over the past three, five and ten years.

Our expertise includes: *Inflation as measured by SA CPI (Primary Urban Areas), Source Morningstar Direct as measured to 30 April 2017; Morningstar SA ASISA Category Average for the South African Multi Asset High Equity category. Sanlam Collective Investments (RF) (Pty) Ltd is a registered and approved Manager in terms of the Collective Investment Schemes Control Act. This is a multi-asset, high-equity fund. The fund is exposed to equities, which means the prices will go up and down. Sanlam Investment Management Balanced Fund is a multi-asset class fund which aims to grow capital steadily while providing income over the medium to longer term. The preservation of real capital is of primary importance in achieving this objective. The Retail Class is the most expensive class offered by the Manager. The maximum charges applicable to the retail class include (incl. VAT): Initial advice fee, 3.42%. Initial manager fee, 0.00%. Annual advice fee, 1.14%. Annual manager fee, 1.25%. The most recent total expense ratio (TER), 1.60%, Transaction Costs 0.16%, total investment charge (TIC) 1.76% Manager Performance Fees are applicable and are included in the TER. The maximum performance fee 1.60%, A schedule of fees can be obtained from the Manager and Performance fee FAQ’s can be viewed on The lowest 12 month annual return over the past 10 years is -14.49% and the highest is 28.20% (based on non-overlapping 12 month periods). The source is Morningstar Direct and the annual figures are available from the Manager.




IFA Symposium 2017 to provide important insights


he IFA Symposium 2017 – brought to you by Alexander Forbes Investments – will be held on 10 October at the Sandton Convention Centre in Johannesburg. The Symposium aims to provide insight into investment trends, financial planning best practices and investor behavior. This is very much an investment adviser focused thought leadership event that will provide delegates with knowledge and tools that they can use in their practices. Policy uncertainty has risen in South Africa in the last few months. President Jacob Zuma has survived a no-confidence motion in parliament and hostility between the mining

industry and Minister Mosebenzi Zwane over the Mining Charter has increased, while more jobs continue to be lost. To make sense of all this, former Finance Minister Pravin Gordhan, will address the Symposium on the state of our economy and our prospects as we head into 2018. Everywhere around the globe, the cost of investments continues to be a hot topic. Phil Young, a Financial Services Consultant from the UK, will explain to delegates that to stay relevant, financial advisers need to bring the total cost of investments down to 2%. “Global trends suggest that through economics of scale, strategic asset allocation and effective practice management, this can be achieved while increasing the amount paid for advice,” Pravin Gordhan, Young says. SA’s former finance minister Anton Kok, Executive: IFA, Alexander Forbes Retail, will provide insight on how financial planners should be prepared to grow their business exponentially, by tapping into a qualified client base and offering holistic


financial planning services supported by industry leading solutions. Mark Mobius, Executive Chairman, Templeton Emerging Markets Group will in his presentation Making Money, where others fear to tread, highlight the advantages of investing in emerging markets. Financial planners have to master investor behaviour and Carl Richards, the US Founder of the Behavior Gap, will share valuable insights to assist advisers in managing their clients’ moves – long before they happen. Many financial advisers are being approached by clients wanting to know what they think about cryptocurrencies and Mike Forestner Global CIO, Private Markets at Mercer, will answer the question: Is Bitcoin the future or money – or will governments shut it down? The financial planning industry knows that today, an online presence is vital. Philip Calvert, a Social Media Sales Strategist from the UK, will focus on smart and effective ways to create an internet presence and become visible to clients seeking advice. The IFA Symposium is a not-to-be missed opportunity to catch up on the latest trends in the financial planning space. Don’t miss it!


Sandton Convention Centre

30 September 2017


The price paid by Zimbabwe’s first lady, Grace Mugabe, this year for a 9 249sq property in Sandhurst, Johannesburg.


The record breaking transfer amount that Paris Saint-Germain paid Barcelona for Brazilian international footballer, Neymar Jr. The previous world record fee is the €105m that Manchester United paid Juventus for Paul Pogba last year.


The price Rolling Stone Keith Richards’ Ferrari 400i is tipped to sell for at auction this month.


Total earnings for the year so far of 30-yearold sprinter Usain Bolt, according to Forbes. This makes Bolt the 23rd highest-paid athlete in the world. Almost all of Bolt’s money comes from endorsements. (Bolt has now retired).

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30 September 2017

Young people ‘definitely’ considering financial planning as a career MoneyMarketing speaks to Marilize Putter, Dean of Financial Planning & Insurance at Milpark Education, about the various courses on offer for aspiring financial planners. What courses does the Milpark School of Financial Planning and Insurance offer to aspiring financial advisers? We offer a full qualification path from the Certificate in Financial Products (NQF level 4) to the Postgraduate Diploma in Financial Planning (NQF level 8). Whether a financial adviser needs to complete a qualification to meet the compliance requirements for a limited range of product categories or whether a student aspires to apply for the prestigious Certified Financial Planning® Professional designation, we offer a qualification that will suit their needs. We also offer a Bachelor of Commerce (BCom) with majors in Financial Planning and Short-term Insurance which attracts young people who enter the work place and who are serious about furthering their careers in insurance, entrepreneurship or to become professional financial planners.   Are many young people choosing financial planning as a career? Young people are definitely considering

financial planning as a professional career, and are more inclined to do so if they have experienced the value-add of financial planning through friends or relatives who work as financial planners. We are very proud to have our first BCom with Financial Planning graduates this year. We have found them eager to learn as much as possible about financial planning as they aspire to offer a professional service to the community. Explain the relationship the Milpark School of Financial Planning has with the FPI and the IISA. Milpark School of Financial Planning & Insurance is an Approved Education Provider with the Financial Planning Institute of Southern Africa (FPI) and the Insurance Institute of South Africa (IISA). Our qualifications on the various NQF levels are aligned with the respective professional designations awarded by these professional bodies.  

Tell us about Milpark’s model of ‘distance learning online’. The model is designed to assist students to focus their learning on one subject area at a time. It further allows them to develop their understanding of the content in a practical and relevant manner. Students learn with the help of the online lecturer and maximum engagement in group discussions. Students complete one module at a time over a period of eight weeks. This provides them with the focus they need to achieve success. With continuous lecturer feedback and support, students are able to identify problems in time to take corrective action before the final examination.

Marilize Putter, Dean of Financial Planning & Insurance

CFA SA announces speaker line-up for annual conference The CFA Society of South Africa has announced the line-up of speakers for their annual conference scheduled for 25 October at GIBS, Johannesburg. The theme of the conference this year is ‘Shaping a Future-Fit Investment Industry’. The finance and investment industry finds itself in the spotlight in the debate on financial inclusion, asset ownership and wealth distribution, and attention is turning to how it can be a force

for good, investing with impact to create the future economy and society that is needed. Against this backdrop, CFA SA is excited to announce the agenda and speakers for this year’s conference, which will be opened by Kedibone Dikokwe of the FSB. Featured speakers and topics include:  • What role should the investment industry play in creating the society South Africa needs? Thabi Leoka, Argon Asset


CFA-SA-Advert-Strip-220x80.indd 1


Management • Economic complexity and diversification in Southern Africa – lessons from South East Asia. Melissa Cook, African Sunrise Partners  • PHI, the hidden variable in Investment Performance. Anne Cabot-Alletzhauser, Alexander Forbes Research Institute • Are Credit Ratings still relevant to Investment Decisions? Panel discussion Moderated

by Tumisho Grater, Novare Actuaries and Consultants • The Application of Blockchain Technology in African Financial Markets. Monica Singer, Strate.  Bookings for this flagship event have opened, with discounted access offered to members of the local CFA society. For more information, contact the Executive Office: Ann Marie Wood,, (011) 791 0105. 

Only the most dedicated complete a program that requires 1,000 hours of intense study, three 6-hour exams, and four years of work experience. To find an investment manager with a deeper knowledge of the investment landscape, look for the CFA® designation. It’s A Difference That Matters™.

17/08/2017 14:58

Book value that makes for good reading. Introducing the Sasfin BCI Opportunity Equity Fund managed by Errol Shear. A key member of the Sasfin Asset Managers investment team and an award-winning Fund Manager, Errol brings over 30 years’ experience and his unique pragmatic value investment style to bear on the portfolio. Each stock has been handpicked by Errol, with the focus on delivering solid long-term returns for investors. To find out more, contact your financial adviser or Sasfin Asset Managers direct on +27 11 809 7510 or email business | wealth | banking

Sasfin Asset Managers (Pty) Ltd Reg no. 2002/003307/07 An authorised financial services provider licence no. 21664 and a member of the Sasfin Group. This information has been distributed by Sasfin Wealth on behalf of Sasfin Asset Managers (Pty) Limited



30 September 2017

ERROL SHEAR Fund Manager, Sasfin BCI Opportunity Equity Fund

Finding value in value


s pragmatic value investors, our approach is to follow the investment style of the classical value investors. According to Investopedia’s definition of value investing, the style is derived from the great twentieth-century value investors such as Warren Buffett and Benjamin Graham. “…Like bargain hunters, the value investor searches for stocks that he or she believes are undervalued by the market, stocks that are valuable but not recognised as such by the majority of other buyers,” the definition says. One of the characteristics of value stocks is that they tend to trade at higher yields than average. If you look at the average dividend yield of shares classified as value stocks on the JSE, they currently have an average dividend yield of 3.9%, or 1.7% more than the yield of

the growth stocks. Value investing requires patience, but while you are waiting for value to be revealed, you are also enjoying a higher dividend yield. A core tenet of value investing is to try avoiding overpaying for stocks which are expensive, because too many investors are following a trend and continue to pay higher and ever higher prices for a popular share. Momentum investors, however, will buy a share purely on the basis that because the share price went up yesterday, it should go up again today. By buying popular shares, momentum investors will push these share prices even higher, thus creating a self-fulfilling situation, certainly in the short term, while the share becomes more and more overpriced. This is also the argument against index investing, where the

more expensive a share becomes, the greater the weighting in the index. As a value investor, our philosophy is to seek out those shares which the stock market has ignored, not disregarded because they are bad companies, but ignored because they are not fashionable. Fashions change – remember when everyone had a Kodak Camera, or when Blackberry was the cool phone to use? Today these businesses, which once had massive market capitalisations, are either gone or a shadow of their former selves. Currently, Apple is the iconic fashionable brand, but will Apple continue to turn out new products for many years which are in high demand and for which consumers are prepared to pay top dollar prices? Or will Apple go the same way as Kodak and Nokia? I don’t know the answer, but history teaches us that it is difficult for a

Be careful of being too cautious when it comes to asset allocation

Globally, despite the fact that political uncertainty has increased, equity markets have continued to deliver positive returns. Low prospective returns from developed market fixed interest assets offer unattractive current yields. There is also the risk of rising yields which could further reduce returns from these assets. This has contributed to push prices of growth assets to levels higher than those investors are used to,’ says Frederick White, co-manager of the Sanlam Investment Management (SIM) Balanced Fund. Locally, investors are skittish and returning to money market and other fixed interest investments, and this trend is backed by the most recent statistics on SA unit trust flows. But clinging to fixed income assets only is not ideal for long-term investors wishing to grow their assets. Long-term growth is more likely in a fully diversified and balanced portfolio, which aims to grow capital and provide some downside protection. White says the SIM Balanced Fund uses all the strengths of a large asset manager like SIM to provide a global balanced solution that represents SIM’s best view. The Fund strives to deliver the best possible capital growth without taking excessive risk. Focus in the Fund always centres around seeking long-term growth while maintaining constant attention to shorter-term draw-down risk and protection against it. Some key aspects of the Fund’s approach include:

Maintaining a value biased approach A key element in targeting both good returns and reduced downside risk remains buying assets when they’re priced below SIM’s assessment of fair value and only selling when their value is fully priced in. Although it’s possible for asset prices to fall further after SIM buys those assets, buying at a sufficient margin of safety does build in a protective buffer. Diversifying across classes and geographies Although equities and local listed property have proven to be the stellar outperformers over the past decades, there is clear space for investment in other asset classes as well. For example, local fixed interest assets are currently offering attractive real yields that are high when viewed in the context of historical returns from the asset class. In light of reduced returns on offer from typical growth assets, these assets are offering more competitive returns, but with lower volatility. Investing across all main asset classes, locally and globally, reduces the volatility of being in equities or property only, but still provides high exposure to equity and property, setting up the Fund for long-term growth. Using derivatives skilfully SIM has consciously worked towards establishing a centre of derivatives expertise in the balanced space

company to always remain on top. In South Africa, we saw the construction companies soar in price ahead of the 2010 World Cup mini construction boom. This was always going to be a short-term boom, ending in 2010. Nevertheless, eager momentum investors pushed the price of Murray & Roberts up to over R100 per share and a price earnings ratio of over 30 ahead of the tournament. This was a fashionable area in which to invest. Many years later the Murray & Roberts share price has recovered, but only to R14. Similarly Aveng soared to over R60 and a price earnings ratio of almost 30, before falling to the current level of R4. Aveng has not paid a dividend for four years, so there was no great compensation for the capital loss from dividend yield.

and actively uses discretionary hedging to reduce the risk of large drawdowns in the Fund while maintaining exposure to growth assets. The amount of hedging is influenced by valuation levels and the hedging strategy is designed to have no direct cost and to minimise opportunity cost. Ralph Thomas, Co-Manager of the SIM Balanced Fund alongside White, has vast experience in derivative strategies across asset classes and ensures that at all times there is a portfolio manager looking for opportunities to build more protection into the portfolio. The main objective is to reduce risk and not to add any element of speculation. How did the SIM Balanced Fund perform in the past? Annualised returns (in %) to 30 June 2017

5 Years

SIM Balanced Fund



Benchmark – Mean of the ASISA SA Multi Asset High Equity category



10 Years

Source: Morningstar Direct | As of 30 Jun 2017 | Annualised return is the weighted average compound growth rate over the period measured.

The worst and the best 12-month returns over the 10 years to 30 June 2017 Highest annual %


Lowest annual %


Source: Morningstar Direct | Lowest and highest 12-month returns in the 10 years to 30 June 2017 Please see our disclaimer:

September 2017 | VOLUME 15










Political uncertainty drives shift to offshore investing





t is perfectly obvious that in the interests of diversification, South African investors should place a portion of their investments offshore, irrespective of whether or not they are optimistic about this country’s future. Yet for most of those externalising their assets at present, diversification isn’t a major consideration. Rather, they’re concerned about what they perceive as political risk in SA. These points from last month’s credit opinion by Moody’s*, highlight the challenges faced: Political tensions within the ANC are rising in the run up to leadership elections “On 8 August, the South African National Assembly’s vote on a motion of no confidence in the President fell short of the 201 votes necessary to remove President Zuma. The results reflect the rising political tensions within the ruling party in the run up to the leadership conference of the ANC in December 2017. “The credit impact of the result is subdued as the long-term weaknesses in growth, the financial situation of state-owned enterprises, and business confidence, as well as continued uncertainties surrounding policy making, remain unchanged. Investment is likely to remain low until a more stable political situation and policy environment emerge.” Growth is underwhelming and the unemployment rate the highest since the global financial crisis “A modest emergence from recession is expected in growth results for the second quarter of 2017, after the South African economy contracted 0.7% q/q in the first quarter of 2017 following a 0.3% q/q contraction in the fourth quarter of 2016. Even though the mining sector has been exhibiting a continued cyclical recovery, taking into account heightened policy uncertainty and the lack of structural reforms, we have reduced our forecast of real GDP growth to 0.5% in 2017 and 1.2% in 2018. “Unemployment, which has recently reached the highest level since the global financial crisis and shows wide differences across ethnic groups, is also projected to remain elevated. “Concurrently, high unemployment and inequality continue to depress private consumption and hence domestic demand. South Africa’s low labour utilisation is a key factor behind the country’s low wealth levels (GDP per capita) relative to advanced economies and some other emerging markets. Against this background, the working age population has limited incentive to invest in skills demanded in the market. In turn, employment is focused in low productivity jobs and firms, where the lack of investment in physical and human capital erodes the capital stock and limits innovation.” Factors that could lead to a downgrade “The future trajectory of the rating will depend on the government’s success in safeguarding South Africa’s institutional, economic and fiscal strength. Indications that the strength and independence of the country’s institutions have diminished to a greater extent than in Moody’s baseline scenario, or that the emerging policy framework has become even less predictable or has shifted in a way likely to undermine economic or fiscal strength, could lead to a further downgrade. Further delays in growth enhancing reforms would be suggestive of such a shift. Downward pressure could also develop if liquidity pressures begin to re-emerge at state-owned enterprises that would elicit pronounced government intervention, be it through the activation of guarantees or other measures.” *Moody’s South Africa Credit Analysis 16 August 2017

President Jacob Zuma


30 September2017

DAVE CHRISTIE Global Product Specialist, Ashburton Investments



ersey has embarked on a strategic drive to leverage its capabilities as a leading international finance centre away from its more traditional Eurocentric roots into newer emerging territories such as Asia and Africa. This ambition is underpinned by the territory’s already significant foothold in Africa in the private wealth, resources and mining sectors, while its experience and close proximity to the UK and European markets, structuring expertise and strong legal and regulatory environment are proven attractions to both Asian and African markets. As has been well documented elsewhere, Jersey’s value lies not only in enabling and providing a highly regarded platform for external or outward focused investment flows but also to facilitate inward investment to those countries where capital is in short supply. In our view, recent geopolitical events, unwelcome and volatile as they may have been, highlight some ongoing but distinct shifts in market behaviour which lend themselves to, rather than detract from, Jersey’s positioning. Global flows have reflected the underlying concerns of investors; capital flows out of emerging markets accelerated while the allocation of developed market GLOBAL FLOWS investors to these areas contracted HAVE REFLECTED significantly. The trends have served THE UNDERLYING to confirm the need for portfolio diversification, emphasising demand CONCERNS OF for multi-asset products, trends which INVESTORS are likely to remain in place for some time. Financial services providers in offshore centres such as Jersey have undoubtedly benefited as natural facilitators and custodians of this reallocation of wealth towards developed world currencies and markets. Another trend we see is the need to be selective about emerging market investments. There are few destinations left out of the acronym rich bunch that strode ahead of the emerging market pack at the beginning of the decade like BRICS. Now we must look to individual countries where real growth prospects are not booby trapped with structural economic and institutional impediments such as deficit funding, corruption and socio-political risk issues. India, an area where Ashburton Investments has focused for several years, is a country rich in demographic and reform potential where future growth prospects are far more visible and tangible than in many of its peers. China, too big to ignore, has a structural shift taking place in the economy, alongside a desire from Beijing to better regulate and deepen the country’s capital markets that will almost certainly ensure opportunities and risks in the years ahead. What about Africa? Political disruption, as well as falling commodity and energy prices, have sent many countries reeling and raised fresh concerns amongst investors. However, it is telling that whereas demand for listed capital market instruments has collapsed in the short-term, also reflecting something of a scramble for liquidity, demand for real assets remains intact. In conclusion, Jersey will not be immune to short-term market gyrations and the impact of what are serious global issues. However, for asset managers such as ourselves, the importance of establishing long-term views and staying the course remains key, while remaining flexible in the implementation of these ideas.

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DUGGAN MATTHEWS Chief Investment Officer, Marriott Asset Management


inancial markets may appear daunting at the moment with so much economic and political uncertainty. However it is important to try and ignore short-term distractions and focus on the long-term trends that matter. Short term distractions are unlikely to have any major impact on markets over the longer term. The key to investing for the long-term is to keep it simple and maintain a ‘buy and hold’ mindset. ‘Buy and Hold’ At Marriott we look to buy shares in quality, dividend paying companies and to hold those shares for long periods of time. We adopt this approach because it:

1 2

Prioritises long term thinking The mind-set of owning stocks for long periods of time ensures our portfolios are positioned for the long-term. Ensures more predictable investment outcomes A buy and hold strategy ensures that returns are a function of dividend growth and re-investing dividends. We believe this is more predictable than trying to anticipate what stock prices will do in the short-term.


Reduces costs Each time a stock is bought or sold costs are incurred. Lower portfolio trading helps keep costs down. It is interesting to note, however, that a ‘buy and hold’ strategy is not the norm in the investment industry today. Exhibit 1 below reveals how shares in the US are being held for shorter periods than at any time since the 1920s.

30 September 2017

MAINTAINING A ‘BUY AND HOLD’ MINDSET Rising incomes in the developing world

By 2025: • Annual consumption in emerging markets will reach $30 trillion • The consuming class will increase by 1.8 billion people • 'The biggest growth opportunity in the history of capitalism (McKinsey)

Aging populations in the first world

By 2030: • The number of people over the age of 60 will increase by one third in the developed world • Healthcare spending will increase by $1.4 trillion (McKinsey)

Technology Enabled Efficiencies

By 2020: • The number of devices connected to the internet will triple to 7.6 billion • Data production will increase by approximately 44 times • Only 10-15% globally currently use data efficiently to optimise performance (Gartner & Boston Consulting Group)

How we apply a ‘buy and hold’ strategy within our income focused investment style At Marriott we look to own stocks for 10 years or longer. This is not to say we will not act timeously if risks materialise, however, portfolio turnover is kept low by ignoring short-term distractions and remaining focused on the long-term trends that matter. In our opinion, there are two key steps for the successful implementation of a ‘buy and hold’ investment strategy: STEP 1: Identify resilient companies with the ability to produce reliable dividends We only invest in companies which are able to produce reliable dividends irrespective of changing economics, politics and technology. This means when something unexpected invariably happens in the world around us (Trump, Brexit, junk status, etc.) we do not have to sell the stocks we hold in our portfolios. STEP 2: Select companies with a favourable outlook for dividend growth Ten years is a long time. Consequently, we look to select companies that will remain highly relevant. The chart above outlines the three trends we feel represent the most significant investment opportunities of the next decade. In our opinion, companies exposed to these developments will produce amongst the best dividend and capital growth in the years ahead.


The stocks to own for the next decade: Given the above, these are the stocks we believe investors should hold for the next decade:


Companies which own the world’s most sought after consumer brands P&G, Unilever, Reckitts Benkiser & Nestle own brands like Pampers, Dove, Dettol & Nescafe, to name a few. Demand for these products is likely to increase significantly in the years ahead, considering the rapidly growing consumer class.


World leading pharmaceutical companies Johnson and Johnson, Pfizer, GlaxoSmithKline and Sanofi are amongst the biggest pharmaceutical companies in the world and own a large percentage of the globe's most essential medicines ranging from vaccines to cancer treatments. As such, these four companies are likely to be major beneficiaries of aging populations in the first world.


The world’s finest manufacturers Companies like GE & Honeywell are leading the way when it comes to connecting equipment to the internet and analysing data to optimise performance. They are therefore ideally positioned to benefit from a trend which is already being referred as the ‘fourth industrial revolution’. In our opinion, the companies outlined above are set to produce amongst the best dividend and capital growth in the years ahead given the longer term trends which matter. Importantly, Trump’s tweets, Britain’s ‘Brexit’ and other short-term distractions will have little impact on their future prospects. As such, we have maximised investors’ exposure to these companies across our portfolios with the intention to ‘buy and hold’.

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30 September 2017



epresenting less than 1% of the global economy and expecting less than 2% growth in GDP per annum over the next two years, the South African economy appears unlikely to offer local investors the chance of decent returns, which remain hindered by socio-political and economic factors. To mitigate the risk of overconcentrating assets domestically and increase their potential for greater and diversified returns, high net worth investors are increasingly taking advantage of their R11 million allowance to invest outside of South Africa. The universe of offshore investing is exponentially more complex and vast than that of investing locally – and it’s easy in uncertain times to panic. Hence, it is always important that investors consult with their financial advisers when considering investing offshore. And even before considering investing offshore, financial advisers needs to take into account investors’ finances, holistically. Questions will arise, such as: Are they still carrying debt? Do they have existing onshore investments that will cater for their needs locally? What percentage of their investment portfolio do they want offshore? Once these questions have been answered and some discretionary money remains, offshore becomes an appealing option. Diversification While the diversification of assets remains the main strategic reason for offshore investment, Wayne Sorour, Head: Old Mutual International South Africa says that, from a South African perspective, investors are investing in more stable economies

for better returns and a wider choice of investment options plus as a currency hedge. “For instance, if you wanted to invest in the Pharmaceutical Sector on the FTSE/JSE, your options are limited to three companies, Aspen, Ascendis and Adcock Ingram. However, within global markets you have a selection of over 60 pharmaceutical companies, and that’s just on the London Stock Exchange. Your investment universe increases exponentially, on top of which you can hedge against the volatility of the rand. “First world equities are also attractively priced relative to bonds and cash. As a result of the low interest rates, investors can currently receive better returns from equities than government bonds and money in the bank.” Studying abroad Given the uncertainty surrounding many of the universities in South Africa, Sorour says that increasingly, high-net-worth individuals are opting to fund future study plans for their children by investing offshore. “At the moment, a big concern for many is whether a degree obtained from a South African university will carry the same international recognition going forward as it has in the past. Parents are therefore increasingly opting to make provision for their children to study abroad if they wish to do so.” When looking to make an offshore investment, Sorour says that investors essentially have two options to consider. “They can invest directly, or via a rand-denominated offshore fund, or what we would call an asset swap fund. Investing directly offshore may seem like the simplest method, however, this option requires tax clearance and various other forms of approval, making it a slightly more

onerous process. However, if the which they are investing. Investors investor chooses this option, their also need to take into account the investment proceeds will be available impact on local tax. to them offshore, in a currency and There are some structures that jurisdiction chosen by them. are more tax beneficial than others. “For investors seeking more favourable Furthermore, estate planning issues returns due to need to be taken current market into account conditions with as there can be THE DIVERSIFICATION a rand hedge, an very serious OF ASSETS REMAINS asset swap should implications be considered, on offshore THE MAIN STRATEGIC whereby returns REASON FOR OFFSHORE investment are based on the inheritance taxes. INVESTMENT movements of Regulations in another currency, the USA and UK but paid out in the base currency dictate that non-residents are taxed (i.e. rand). However, due to the ease of on some assets they have and this can process, the costs are often higher and be as high as 40%. For example, when the taxing method is less favourable people buy property in the UK, if its when purchasing an asset swap.” value is in excess of £325 000, it will incur inheritance tax of 40%. Tax implications Ultimately, Sorour says that there is Sorour urges investors eager to no “best” route or pre-defined portion explore their offshore options to of wealth that should be invested consider more than just returns. In offshore, as this is dependent on the addition, he says that the various individual’s specific financial situation investment structures available also and goals. need to be considered, as well as tax “Overall wealth, financial goals implications and estate planning and family setup are just some of the consequences. All of these factors factors that impact what percentage can impact the ultimate success of assets should be invested offshore. An an investment. For example if an experienced financial adviser will be investor, with offshore assets were to fully equipped to assess these factors pass away, there may be consequences and suggest a solution that is most of not having an offshore will. This suited to a particular situation.” is where an adviser can add a great amount of value in determining what vehicle would be best for each specific client, based on their financial position and requirements. Thus investors need to think about the structure in which they invest such as directly in funds such as a Wayne unit trust, or via a life wrapper. Sorour Sorour, Head: adds that they need to consider the tax Old Mutual implications of this decision in terms International South Africa of the markets and jurisdictions into

IMPORTANT INFORMATION: Old Mutual Wealth (“OMW”) is an elite service offering brought to you by several licenced Financial Services Providers in the Old Mutual Group (“the Old Mutual Group”). This article is for information purposes only and does not constitute financial advice in any way or form. It is important to consult a financial planner to receive financial advice before acting on any information contained herein. OMW, the Old Mutual Group and its directors, officers and employees shall not be responsible and disclaim all liability for any loss, damage (whether direct, indirect, special or consequential) and/ or expense of any nature whatsoever, which may be suffered as a result of, or which may be attributable, directly or indirectly, to the use of, or reliance upon any information contained in this article.


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30 September 2017



rivate individuals in South Africa have traditionally been poorly serviced, paying high foreign exchange premiums and costs to move money out of the country. This is no longer the case, says Exchange4free, a South African owned global foreign exchange, money transfer and payments company. (It currently services over 50 000 private and corporate clients in over 40 countries worldwide). Exchange4free offers a one-stop solution to financial advisers moving funds into and out of the SA with benefits such as SARS tax clearances. Exchange4free is also an authorised Foreign Exchange Broker – or Intermediary – approved by the South African Reserve Bank (SARB). The company services the needs of private clients investing offshore, emigrating, buying property abroad or sending regular money transfers overseas. Exchange4free was started in London in 2004 and has since traded in excess of $10 bn globally via offices in the UK, South Africa, Australia, Switzerland, Canada and Israel.


“The company has delivered an international standard forex service for South Africans, by developing a simple, transparent, highly competitive and user-friendly solution without investors ever having to leave the comfort of their homes or offices – all while delivering an unbeatable service and price offering.” It adds that the industry has typically been characterised by slow, unresponsive and unprofessional service, low levels of product and exchange control knowledge and very high costs, (when considering hidden forex margins and international transfer fees). Now, South Africans

looking to utilise their R10 million foreign investment allowance or their R1 million discretionary allowance, can do so by using Exchange4free, helping them save both time and money. Exchange4free’s solution to South African private clients investing offshore includes the following: • Bank beating forex rates • No Swift fees or hidden costs • Free SARS tax clearances in 2 - 5 days • Unbeatable service via a simple online application form. The company also works and partners with investment managers,

offshore fund platforms, estate agents and emigration firms to provide a value added service and better deal to their customers. In addition to the above services, Exchange4free offers a formal emigration service as well as forex services to non-residents and clients wanting to apply to the SARB to exceed their annual limits. Applications can be made online in less than two minutes. “Alternatively, being a global foreign exchange company, if investors have funds that need to be transferred to South Africa from abroad, or to and from almost any country worldwide, then Exchange4free can deliver an international solution at unbeatable rates with no fees’.’ Visit for more information or call Matt Lawson on 011 453 7818 for any assistance. Exchange4free is a SARB approved Foreign Exchange Broker or Intermediary and an authorised Financial Services Provider (FSP 47434).


30 September 2017

PIETER KOEKEMOER Head of Personal Investments, Coronation Fund Managers


value of its investments. • Debt levels around the world remain very high – unprecedented amid low interest rates worldwide. We believe global bonds markets are distorted; the recent correction in the 35-year bond bull market may only be the start of big losses. • Political risk is elevated. The current political leadership in developed markets has lost credibility, and in the US and UK in particular, there is a lot of discontent and rising populism fuelled by inequality and stagnant real wages of middle income earners. The risk is that political rhetoric will move sharply to the left and bring a radical change to the free market economic model we have known for past decades. Despite these concerns, equities remain our asset class of choice given the lack of alternatives. However, we remain cautious in our equity exposures and have added significant downside protection to our balanced funds. The

combination of relatively high valuation levels and macro uncertainty has increased the risk of capital loss. At the same time, the cost of buying protection is at all-time lows, and we have taken advantage of this situation. While we remain vigilant of risks, we continue to find long-term investment opportunities across the world. Among our developed market holdings, Alphabet and Facebook are core investments, as the disruptive power of the internet continues to transform many long-established business models – also in advertising. The near-term multiples afforded to Alphabet and Facebook may seem high, but their growth rates are multiple times higher than the market. The longterm compounding of revenue and earnings isn’t captured by looking only one year out. Their net cash balance sheets are robust compared to the market as a whole. Similarly, Amazon offers an openended growth opportunity. Online retail sales are accelerating and the

company is the dominant ecommerce retailer in many markets. In our emerging market portfolios, our funds also have sizeable exposure to internet-related and e-commerce shares in China. In terms of e-commerce penetration, China is already more developed than the US. Still, there remains massive growth potential, as internet penetration is only at 55% in China (compared to an average of 80% in developed markets). We often get questions from advisers on the ideal exposure to international assets. The answer would depend on a client’s specific circumstances. Studies show that a minimum allocation of 20% to 30% (increasing as a client’s balance sheet expands) is suitable for the majority of investors. Externalising money may often be preferable to randdenominated funds. There are various reasons for this, including the risk of potential changes to exchange controls and capacity constraints in local funds (so far Coronation has been unaffected and funds have not been closed).


he current bull market on Wall Street has run hard for more than eight years, the secondlongest in modern history. Given the strong (dollar) gains in equity markets, it is likely that the expansion is getting long in the tooth. There are currently three main risks for equity investors in global markets: • Asset price risk. Equities have seen a massive surge, with the Standard & Poor 500 gaining more than 260% during this run – and valuations are looking stretched. This is reflected in our equity exposure: equity allocation in our low-risk fund Coronation Global Capital Plus is at 27% (its through-the-cycle average is 35%), while Coronation Global Managed is at 57%, the lowest level since inception. That said, we are not necessarily expecting a major correction, or believe that global equities are dramatically overvalued. The Global Managed equity portfolio, for example, still has upside of 35%, according to our estimates of the fair


THE FURTHER YOU TRAVEL, THE MORE OPPORTUNITIES YOU’LL FIND. Nothing stops the caribou when it’s on the move. Not snow, not lakes and rivers, not even mating. After all, when you only eat grass and lichen, you make sure it’s the very best grass and lichen, even if you have to travel 3000km to get to it. Allan Gray and our global asset management partner Orbis share the caribou’s philosophy. We know that the further you go, the greater your investment prospects. That to be a successful investor you have to access opportunities beyond the 1% of the global equity market represented by South Africa. We realise that the choices out there can be overwhelming, so we’ve narrowed down the options to what we think are the most fertile offshore investment opportunities, in the Orbis Global Equity Fund. To be more like the caribou call Allan Gray on 0860 000 654 or your financial adviser, or visit

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Artist’s impression. Allan Gray Unit Trust Management (RF) Proprietary Limited (the ‘Management Company’) is registered as a management company under the Collective Investment Schemes Control Act 45 of 2002. Allan Gray Proprietary Limited (the ‘Investment Manager’), an authorised fi nancial 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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30 September 2017



s an independent Discretionary Fund Manager (DFM), MitonOptimal has been working with and alongside IFAs/ trustees for the best part of two decades and both professions face increasingly common issues. It is evident to us that the old ways of doing business are changing, globally, and without exception. In fact, a growing number of traditional institutions no longer accept clients from jurisdictions perceived to be higher risk and increasingly refuse to open bank accounts for any form of structure. We have seen that pace of change increase significantly over the past few years, depending on your jurisdiction, with FATCA, CRS, BEPS, GDPR, MIFID II, RDR and Registration of Beneficial Ownership to name just a few, overwhelming IFAs/trustees with administrative workloads and regulatory requirements. In this atmosphere, it is easy for the management of portfolios to be inadvertently nudged down an IFA/trustee’s priorities list in many instances. Past decisions and inertia may have an adverse impact on portfolios For IFAs/fiduciary professionals, ensuring that assets and strategies stay aligned with a client’s/trust’s investment policy statement should be a straightforward process. However, a client’s, settlor’s and/or beneficiaries’ personal preference, a good sales pitch from a product provider, or the search for yield can lead to decisions that potentially shift the dynamics of a client portfolio away from the original investment policy statement. From our own experience, when conducting initial portfolio reviews for IFAs/trustees (a major part of our DFM service offering), we are seeing an increasing number of portfolios that either no longer match the original investment mandate, or have had the same asset allocation since inception, sometimes going back decades.

There can be a number of possible reasons for this, especially when an IFA/ trustee inherits a client relationship or large book of clients. However, these substantial challenges also offer an opportunity to better manage the investment aspect of a portfolio/trust, through using income generation and careful stewardship of those a better, faster and smarter portfolio management investments enables an IFA/trustee to maintain a solution, in the form of DFM partnerships. strong relationship with the client/beneficiary. Working with a DFM partner enables the IFA/ For single or larger organisations they trustee to conduct an unbiased and enhanced should provide an insourced investment forensic portfolio management committee or chief analysis, allowing investment officer functions, WORKING WITH A DFM allowing your clients to benefit the IFA/trustee to re-establish a suitable from their investment analytics PARTNER ENABLES risk profile and asset and experience without having to THE IFA TO CONDUCT allocation strategy. appoint an external manager on a That DFM partner will discretionary basis fully. AN UNBIASED AND also take on the dayAs your DFM partner, their ENHANCED FORENSIC to-day responsibility primary focus should be on asset PORTFOLIO ANALYSIS for the investment allocation and portfolio management. decision-making There has also been a paradigm process, enabling IFAs/trustees to further de-risk shift in portfolio management. In particular, the their businesses. The IFA/trustee remains the evolution of investment platforms as a viable primary relationship manager, whilst benefiting alternative to the more traditional approaches now from the full range of research and analysis tools, enables IFAs/trustees to access investment solutions skills and investment experience of the DFM. at the click of a button. Your DFM partner, should be platform agnostic and make their solutions Your DFM partner must understand available to you via various custodians. client circumstances and the IFA/ Over the last few years, there has been Trustee relationship a ground swell of independent IFAs, trust Your DFM partner must have experience in businesses and private client practitioners tailoring portfolio solutions to suit a broad seeking to engage an investment manager who range of client-specific circumstances and understands both their business needs and their investment objectives. client servicing requirements. Most are simply They must understand that wealth preservation trying to do things better/smarter, whilst always is key to securing the legacy of a client, and that looking to avoid that ticking time bomb.

The DFM partner of choice t: 021 689 3579


Investment Manager: MitonOptimal Portfolio Management (Pty) Ltd: Registration No. 2000/000717/07. MitonOptimal Portfolio Management (Pty) Ltd is an authorised Discretionary Financial Services Provider (FSP no. 734). MitonOptimal Portfolio Management (Pty) Ltd complies with all the requirements of the Financial Advisory and Intermediary Services (FAIS) Act (Act 37 Of 2002). The value of investments and the income from them may vary and you may realise less than the sum invested. Past performance is not necessarily a guide to future performance and no guarantees are offered in respect of investment returns and/or capital invested.


Advisory Services

Fund Management


30 September 2017



outh Africans tend to flock offshore in response to rand weakness or negative news headlines. This is counterintuitive, costly and can destroy value, says Tamryn Lamb, Head of Client Servicing in South Africa for Orbis, Allan Gray’s offshore investment partner. “The decision to go offshore should be made for the right reasons, and it should form part of your long-term investment plan,” she says. Lamb explains that the ‘right’ reason for investing offshore includes the need to diversify your portfolio and broaden your exposure. “The JSE accounts for just over 1% of the world’s markets, and only 6% of emerging markets. Furthermore, there are major business sectors like technology that simply cannot be accessed locally.”

How to invest offshore Domestic investors do have a percentage of their portfolio effectively earning offshore revenue through exposure to top JSE-listed companies, with approximately half of the earnings of the Top 40 listed companies in South Africa (representing more than 80% of the market) generated outside of our borders. However, for investors wanting direct access to the full global listed equity universe that is not available on the JSE, and to earn returns in foreign currency, there are three main routes to investing offshore: through a local unit trust that is mandated to invest a portion of its assets offshore, through a rand-denominated unit trust that invests entirely offshore or via a mutual fund through an offshore provider. “Many local unit trusts, such as your typical balanced funds that must comply with retirement fund regulations, can invest up to 25% of their assets offshore. How much offshore exposure you get in these unit trusts depends on the asset manager’s view at the time. If you are looking for additional offshore exposure, the simplest choice is to invest in a rand-denominated unit trust. These are provided by locally based asset managers, who offer ‘feeder funds’ directly linked to an offshore unit trust. You invest and withdraw in rands, but your investment is into foreign companies. “The other route is to invest in foreign currency, either directly with an offshore provider, or through an offshore investment platform. The attraction of this option is that you are invested in foreign currency and while going this route is a bit more admin-intensive, it is not difficult,” says Lamb.

Diversification as part of a financial plan Lamb explains that all these choices must be made in the context of your financial plan. “Investing offshore should never be a kneejerk reaction to events, but rather a decision taken as part of an overall financial plan. “Your personal circumstances and risk tolerance should govern how much of your portfolio you should take offshore and into which asset class. Seek advice from a reputable financial adviser to help you navigate the greater complexity that inevitably arises from the huge number of funds available globally. It can otherwise be overwhelming.” Take a long-term view Lamb suggests that investors should balance the benefits of diversification with their own investment objectives and time horizon. “We caution investors against focusing excessively on the short term as this could cloud judgement and see investors making decisions that may ultimately destroy the value of their investments. “One way to help ride out short-term volatility is to adopt a long-term view and choose an investment manager you trust and who has experience and a proven track record. Then stick with your investment strategy consistently over the long term,” she concludes. Orbis presented on investing offshore and the opportunities it can find in the current global environment at the Allan Gray Investment Summit on 31 August 2017.

Tamryn Lamb, Head of Client Servicing in South Africa for Orbis



outh Africa has world class companies listed on the Johannesburg Stock Exchange – many of them are run by excellent CEOs and do produce fantastic earnings growth. Some have been able to branch out and diversify their earnings base so that they are growing market share and earnings in other jurisdictions, which is great for investors. But the fact of the matter is that you are still missing out on exposure to industries, technologies and sizable markets which South Africa just can’t offer. All South Africans need some offshore exposure in their portfolios. Don’t limit where you can invest your money. Have a look at offshore options too. Years back, offshore investing was a real trial from a South African point of view. Today you have many more choices. {XII}

The most popular options are: • OPTION 1: Physically taking your money offshore i.e. going through the exchange control process, opening up an offshore bank account and sending your South African rand (ZAR) overseas into a currency of your choice. • OPTION 2: Investing in randdenominated investment options. Your investment and currency exposure is foreign, but you invest in rands i.e. your money does not physically leave South Africa. Which option you choose depends on your circumstances. Both however, give you the foreign exposure you desire and a hedge against rand depreciation because your money is invested in foreign currencies. Satrix has solutions for both options. You can buy global ETFs listed on the JSE or physically take your money

offshore and invest it in one or more of our offshore unit trusts. Our ETFs are denominated in ZAR and are what we call rand-denominated global funds. These funds are priced in rand, but your capital is invested offshore which gives you the global diversification and foreign currency exposure you’re after. You don’t need SARS tax clearance to invest in these funds as your investment is made in rand and paid out in rand on disinvestment in South Africa. You are also able to set up a debit order and the lump sum minimums are a lot lower than what is required of you if you choose Option 1. So what should you consider? Whilst investing offshore should primarily be about global diversification, accessing different industries, interest rate and inflation regimes and stronger economies, for

South Africans it is about much more. If you don’t have a large lump sum, but still want a rand hedge investment option, then Option 2 is the way to go. You can always save in this vehicle until you reach the minimums required for Option 2 and then move the capital offshore. Whatever your concern, as a South African serious about your financial wellbeing, you need to consider a portion of your total portfolio being invested offshore. And always remember, stock market investing is a long-term game (5-7 years minimum). Please see our disclaimer

Helena Conradie, CEO of Satrix

30 September 2017




cquiring a second citizenship or permanent residency status is very appealing to many South Africans. The main reason is personal: to implement a Plan B to assure their family’s future by protecting against political risk and economic instability. Europe is the world’s largest single market and global trading block and is still the preferred investment destination. Unlimited access to the EU and the UK is where a second citizenship in Europe excels. Chief benefits include travelling, living, working and studying anywhere in the European Economic Area; plus visafree travel to many countries. Permanent residency is also attractive because it allows the permit holders the legal right to live in that country without having to go through onerous immigration processes should they wish to make a permanent move. There are some countries in Europe offering the chance to secure a second passport or permanent residency, but the choice of where to invest can be daunting. Investors are advised to assess each programme to understand any language barriers, the minimum investment, the pre-requisites in terms of documentation, any travel limitations and all of the costs – both immediate and ongoing. Cyprus, an English-speaking, ex-British colony and full EU member currently has the most attractive second citizenship and permanent residency programmes available. Citizenship is granted in three months via Cyprus’ ‘Citizenship through investment’ programme: • It’s the quickest process in Europe • All dependent children up to age 28 and the parents of the investor qualify • It’s an investment – not a donation • The property/ies can be rented out and need to be retained for only three years • Citizenship is passed down through descent offering a legacy to future generations. Permanent residency is granted in 4 – 6 weeks on the ‘Fast Track’ programme. • This is the only programme in Europe where three generations in the same family (including both the parents and in-laws) all acquire residency by buying one property • Dependent children up to 25 qualify • The property can be rented out • There is no requirement to live in Cyprus; nor be domiciled there for tax.

EU Passports are issued in 3 months! Travel, live & work anywhere in the EU (incl. UK) Dependent children up to aged 28 qualify. This is an INVESTMENT, not a donation! Visa-free travel to more than 169 countries Your CAN rent out the property No need to ever live in Cyprus

The best way to make a decision about buying a property abroad is by taking the time to view it for yourself. Join us on one of our last 3 customized 5-day property inspection trips planned for 2017 to investigate the available opportunities. TOUR 1: Mon 18th Sept – Sat 23rd Sept TOUR 2: Mon 25th Sept – Sat 30th Sept

Some lifestyle attractions that Cyprus offers are: • Euro-accredited education that gives your children an advantage when they enter the global job market • Low cost but high standard of living • Europe on your doorstep • First world medical facilities and affordable healthcare with highly qualified doctors and specialists. An astute offshore property investment that works for the short, medium and long term is the achievement of a lifetime. In Cyprus investing in the ‘Citizenship through Investment’ or the ‘Fast Track’ residency programme not only makes financial sense, but it will tangibly benefit a family for generations to come. Can you afford not to take advantage of this while both programmes are still open? Cypriot Realty – a proudly South African company in operation for nine years with offices in Cape Town, Sandton and Cyprus – can assist you. We are recognised and respected as Southern Africa’s authoritative offshore investment specialists, promoting Cyprus as an ideal destination for acquiring EU citizenship or permanent residency, property investment, immigration or retirement and for starting an EU-based business – we understand investors’ needs. Contact us for a confidential meeting to discuss how we can help you realise your Plan B in Europe.

TOUR 3: Mon 2nd Oct – Sat 7th Oct Each tour is limited to 5 couples – con tact us now to reserve your slot!

Cypriot Realty – working with you to realize Your Plan B in Europe!

JENNY ELLINAS | 083 448 8734 | {XIII}


GEORGE CIPOLLONI Fund Manager, Nedgroup Investments Global Cautious Fund



onald Trump’s first six months as president of the United States was filled with enough excitement to last a full four-year term. Direct challenges to traditional European allies, threats of lawsuits against the media, backing out of major multi-national deals, contentious dismissals of staff members and even early impeachment chatter kept the news outlets on their collective toes.   Just one quick look at the President’s controversial Twitter feed displays an endless unfiltered stream of his consciousness…  and while you may never predict what you will see, it will always be direct and occasionally intelligible (what is covfefe?).  Who would have thought it would have started out this way? Well, actually, Trump’s track record would have given us a pretty good indication of what was to come: • Bold statements and big promises? Check. • Abrasive personality and ruffled feathers? Check. • Combining work and family interests?  Check. • Limited results and passing blame? Check there too. Track records are our thing In selecting companies to invest in, the managers of the Nedgroup Investments Global Cautious Fund spend a significant amount of time researching the backgrounds and track records of management teams. While executives can bend the truth or make overly optimistic statements, one cannot change the past. We believe a manager’s track record holds vital clues to help us set future expectations – to help us increase our odds for selecting successful investments.  For example, a CEO with a record of achievement may be able to find similar success again. Certain core values demonstrated in running a business can possibly transcend time and place. Conversely, unattractive attributes or poor decision making can be an indication of a manager that is illsuited to handle the responsibility of running a business. This part of our analysis may not lead to definitive answers or certainty in our assessments, but it can help us to increase our odds of investment success.   So to go back to that last question in the first paragraph – who would have thought Donald Trump’s presidency would have started out this way?  The truth is – a quick review of Trump’s track record gave us more than a few clues. The Donald Trump track record A look back at Trump over the past few decades reveals a controversial man that makes big, bold statements while only occasionally following through on his commitments. This man has an amazing talent through promotion. While he enjoyed the highest of highs and the lowest of lows in the real estate market, Donald Trump ultimately is a great business promoter and he is an even better promoter of himself. His skillful marketing of his own name allowed him to overcome bad real estate deals, billions of dollars in debt, casino bankruptcies and a failed stint as CEO of a public company. {XIV}

30 September 2017

And through it all Trump always figured out a way to protect his personal interests, no matter how much money his investors may have lost. Bondholders were defaulted on and equity holders in his Trump Hotels & Casino Resorts were shown just how fast a bad choice can get worse.  But Trump overcame these obstacles as he learned a very valuable lesson. He was, in the estimation of his bank lenders, too big to fail. His assets were worth more with his name on them versus the alternative which was complete insolvency. So Trump picked up his remaining assets and pride, and began licensing his name to just about anything he could – hotels (of course), golf courses, resorts, bottled water and even a university. His stint as a reality star on the hit show ‘The Apprentice’ reintroduced Trump into the highly visible role of a successful businessman whose tag line was ‘You’re Fired!’. The American public believed him to be as powerful and successful as he appeared on television.   When Trump, who had toyed with a presidential run for many years, finally announced his candidacy in the 2016 Presidential Election, many thought it was a joke. But the great promoter did what he did best. He convinced enough disgruntled, middle-class Americans to vote for him and he pulled off one of the greatest upsets in the history of democracy.    His timing was impeccable as a populist wave engulfed much of the globe. He won votes as he hearkened back to days of American global dominance, manufacturing strength and even some good, old fashioned nationalism.  Throughout the election, Trump made many bold promises. His economic policies and tax cuts would lead to higher rates of GDP growth. He would build a wall on the Southern, U.S.-Mexican border and make Mexico pay for it. He would dismantle Obamacare which burdened Americans with higher health care costs. He would remove the US from ‘bad trade deals’ like NAFTA. Trump called America’s largest trade partner – China – a currency manipulator and promised to fix our trade imbalance. On his inauguration day, Trump said that ‘from this day forward it’s going to be only America first…America first!’. The US (and global) equity markets responded strongly to Trump’s rhetoric and promises of future growth. Interest rates jumped and bond prices slumped as government bond markets anticipated a shift from a deflationary psychology to a new, inflationary environment. Infrastructure spending was going to lead to more jobs and more business for construction companies. Promises of corporate tax cuts led to a shift up in earnings expectations and higher stock prices. All was well in the US of A as

Trump’s ultimate promise – to ‘Make America Great Again’ – was seemingly going to happen overnight. But then reality (and Washington politics) set in. Trump quickly realised that he was not managing a business with his name on the door. He was not bossing around his close friends and children. He had to exert influence on politicians that did not fully trust him in order to garner enough votes to pass laws. Trump, always ambitious (and at times delusional), started with one of the toughest challenges – to repeal Obamacare. Even with a Republican majority, he could not get the job done. A victory on this issue could have put the political wind in his sails and propelled him to an expedited pace of additional policy changes.  This high-profile setback effectively stalled his progress and raised doubts of support from his own political party’s base. Trump suffered his first major political wound. But as Winston Churchill stated: “Politics is almost as exciting as war, and quite as dangerous. In war you can only be killed once, but in politics many times.”   Trump is early enough in his first term to get another chance to succeed or fail again… and again…and again. The political winds shift with the most unpredictable of elements – public opinion. Six months is not enough time to judge a presidency. Maybe Trump will be able to bounce back and figure out a way to regain his political footing. Maybe he just needed some time to learn the rules of the game. Maybe he will fulfil the bold promises that he made during his elections. Maybe he will be a great success. Or maybe he will display the same immaturity and petulance he displayed as a businessman. Maybe he will make an even bigger mess of things and walk away leaving only blame for others. As a US citizen, I wish for his success but fear that Trump’s track record foretold what was to come… that Trump’s need to feed his own ego is greater than his desire to work within the system to get things done. Was Trump ever serious about this presidency business or was this just another promotional trick? Can the successful reality TV star be a success for the benefit of others in reality?   His track record begs the question – but only the next three and a half years will deliver our answer – unless he gets fired in the meantime.

IS YOUR MONEY AS WELL TRAVELLED AS YOU? Invest globally with SA’s top-rated offshore fund manager.* *Raging Bull Awards as at 31 December 2016.

Nedgroup Collective Investments (RF) Proprietary Limited is an authorised unit trust manager in terms of the Collective Investment Schemes Control Act. For full details of awards and further information please visit: Performance cannot be guaranteed and past performance is not necessarily a guide to future performance.


30 September 2017

Fixed rates growing in popularity


iven the current economic uncertainty and market volatility, investors are increasingly turning to fixed dividend or interest-bearing products. With reduced performance risk, this conservative approach aims to ensure steady returns in this uncertain investment climate. This is according to Dr Anton Hay, Director of Ecsponent Financial Services, who refers to data from the Association for Savings and Investment South Africa (Asisa) that shows nearly 44% (around R68 bn) of new investments in the first quarter of 2017 were invested conservatively in money market and interest-bearing funds. “During the same time, only 36% (about R56 bn) of all new investments were in unit trusts. This is due to higher yields on more conservative investments providing inflationbeating options (of 6.3%) up until the end of March,” says Hay. Hay explains that these figures mirror general market sentiment, that investment returns on unit trusts have been mediocre with only a minority outperforming inflation. “In uncertain times, many investors consider moving their funds to fixed-rate products because they want greater security. A fixed rate allows

investors to sleep better at night, knowing that their investments and returns are stable and predictable. “Lately, even experienced investors appear to be unsure about the markets and fund managers are openly acknowledging that they are less confident about managing their clients’ investments. Ultimately, it is becoming more difficult to make major decisions in an environment which can change drastically within just a matter of days,” Hay adds. An example of the serious consequences which can follow one wrong investment move was when panic-stricken investors moved billions to foreign countries in December 2015. Hay says: “This was their immediate reaction to the rand’s sharp decline after the axing of former Finance Minister, Nhlanhla Nene. Since then, the currency has strengthened and the wisdom behind the capital flight reaction has come under question.” With this in mind, how do you make a safe decision in these uncertain times? Stay calm Hay suggests if such a scenario of uncertainty arises, it is essential to keep calm and act rationally so that you do not end up losing more

A FIXED RATE ALLOWS INVESTORS TO SLEEP BETTER AT NIGHT of your money by mis-timing the market, or panicking and investing in inappropriate vehicles or schemes. Beat inflation “Be sure to consider the net-effect when choosing fixed-rate investments. In other words, your yield after tax and costs must still beat inflation,” Hay says. “An investment that offers stable, predictable returns will reduce the risk of volatility, capital loss and poor performance. Your exposure to the influence of local and global political turmoil is minimised completely and you don’t have to spend time trying to time the market.” A fixed-rate product makes sure the yield, period and objectives are

clear – no surprises and no sleep lost if this solution fits in your long-term investment plan. “Whether you are a seasoned investor or not, fluctuating investment values and uncertainty are bitter pills to swallow. Consider options that will give you peace of mind, without sacrificing returns in the current market,” Hay concludes.

Dr Anton Hay, Director of Ecsponent Financial Services

The top 10 most liveable cities in the world The Economist's Intelligence Unit has released this year's edition of their Global Liveability Report, which ranks 140 cities across the world based on their quality of life across these categories: stability, healthcare, culture and environment, education and infrastructure. Here are the top 10: 1. Melbourne, Australia 2. Vienna, Austria 3. Vancouver, Canada 4. Toronto, Canada 5. Calgary, Canada 6. Adelaide, Australia 7. Perth, Australia 8. Auckland, New Zealand 9. Helsinki, Finland 10. Hamburg, Germany For the seventh year in a row, Melbourne has been named the world's most liveable city. For Australia and Canada, the results look good, as each country has three cities in the top ten. The United States missed the top 10. "New York, London, Paris and Tokyo are all prestigious hubs with a wealth of recreational activities, but all suffer from higher levels of crime, congestion and public transport problems than are deemed comfortable," the report states.

Financial Data Solutions ProfileData takes pride in being the leading South African financial data feed solutions provider.

Contact Lionell Wobben 082-559-8283 | 011-728-5510



KIM HUBNER, Head: Business Development and Marketing, Laurium Capital


here’s a lot to think about when choosing an investment and an investment manager. Investment process, the people behind the process, performance, expectations around the state of the political and economic environment – all come into play when advisers set up an investment portfolio for a client. Sometimes we place more emphasis on some factors rather than others. Are there fixed investment rules we should always follow? Here are five investment rules that are always relevant, no matter the GDP numbers, share prices or current political issues.


Look for investments that add diversification to a portfolio You know the drill – diversification results in better risk adjusted returns, and is an essential element of a well-structured portfolio. But diversifying effectively is not always a simple matter. By including three investment managers in a portfolio might not offer diversification if the managers’ funds are highly correlated. In this case, you are diversifying by name only and not offering clients the benefits of enhanced returns at lower risk. For example, it is not uncommon to see advisers allocating an equal proportion of assets to each of the ‘Big 4’ Balanced Funds, who have assets in excess of R300bn collectively in these four funds alone. While these funds have all done well over the long term, diversification benefits are marginal, evidenced by very high correlation figures.

30 September 2017

Five investment rules that always matter In contrast, including a boutique fund manager often increases the probability of reducing correlation and offers a better diversifier that will enhance performance. Boutiques have a differentiated and focused approach to investing, compared to larger managers. Smaller asset managers can be more nimble and opportunistic in their stock picks and play outside the large cap universe. Managers at larger firms may have greater liquidity issues if their funds are sizable.


Find out if performance is down to skill or luck Good performance can come from skill, or it might just be a lucky call. To check which one it is, ask your fund manager to share their performance attribution which will tell you the what, where and why of performance numbers. Consistent performance over time matters, so be sure to look at the track record over five to ten years.


Know your fund manager Transparency is a must. You should have a relationship with your fund manager where they share their investment process and reasons for investment calls. Understand how they invest. At Laurium, we have an open plan office and the fund managers sit close to the traders so we can be nimble and quick when we need to be. We interact with one another all the time – so we are aware of what is going on.

exist in SA, where the two are subject to identical tax treatment. This makes for a less compelling case for local investors to use ETFs compared to the US. Two other significant differences are highlighted in the accompanying graph, showing that the FTSE/JSE SWIX Top 40 Index is one of the most highly concentrated, and has one of the highest turnovers, in the world. The first characteristic means that investors who track the index get far less diversification than other broad market equity indices, with a concentration (as measured by the Herfindahl-Hirschman Index on the vertical axis) of nearly 900, compared to the S&P 500’s at below 100. Currently Naspers, the largest assive investing is gaining ground company in SA by market capitalisation, in SA, mainly due to the (generally) makes up over 20% of the SWIX Top 40 lower fees involved compared to Index. Our high market concentration actively managed funds, but also based on makes simple equity index tracking some misperceptions stemming largely investments much more risky in SA from the US experience. Fundamental than in many other countries. differences between the US and local At the same time, our SWIX Top 40 markets should dictate more caution Index also has a much higher annual on the part of South Africans towards a turnover than the US and many other passive approach. countries, as companies qualify to move One notable difference is that in and out of the index more frequently. exchange traded funds (ETFs) enjoy a This drives South African index substantial tax advantage over actively tracking costs comparatively higher managed unit trusts in the US. This as passive managers must rebalance arbitrage has been one of the key their portfolio holdings in line with the drivers of the US move towards ETF ever-changing composition of the Top investments. Yet this advantage does not 40 biggest shares, resulting in higher


Personal investments and equity ownership Even if you invest in your own funds, are your investments big enough to make a difference? It’s common today to have fund managers invested in their own funds – you shouldn’t expect anything less. But how much is that investment? At Laurium, we are completely aligned to our clients, by being fully invested alongside them. A 2014 Morningstar study found that funds in which managers had invested over US$1m had higher success rates than funds in which managers had invested less. The level of investment makes a difference. The same argument holds for equity ownership. Is your fund manager’s job just a job or do they have a personal stake in the business? When people own equity in the business, there is a greater focus on risk management and performance.


Consistent management style Not everything always goes right. Even the best fund managers have years where performance is poor. Look at how your fund manager reacted to the bad times. You need them to be rigorous on examining the reasons behind the poor performance, and change things if they need to be changed. But be very wary of a fund manager who changes styles and investment processes. A good process should be retained – flip flopping between strategies is a warning sign your manager’s process is not sustainable and won’t be replicated.

SA Equity Market: High Concentration Risk and Turnover

JOHNY LAMBRIDIS Portfolio Manager, Prudential Investment Managers



700 Index (HHI) Concentration

Why active investing beats a passive approach



600 500

BRAZIL Bovespa

400 300 200

JAPAN Nikkei 225 US S&P 500

100 0 0%









Annual Index Turnover Source: Bloomberg, S&P

numbers of costly transactions which detract from performance. Importantly, as illustrated by the dashline in the graph, we would expect that the further one moves along a continuum from the US market (lowest concentration, very low index turnover) to SA (highest concentration, very high index turnover), the easier it should be for active managers to outperform the market index. It makes sense that a passive approach could provide better results in highly diversified, lower-cost markets, while an active approach would tend to outperform in less diversified, higher-cost markets. So, one could expect that in SA, a higher proportion of active equity funds would be likely to outperform the market index than in the US.

An analysis of the performance of ASISA equity funds confirms this, showing that a higher percentage of active equity funds succeed in outperforming their benchmarks after fees, compared to the US market. Taking the five largest unit trust funds in the ASISA General Equity category aggregated with Prudential’s two equity unit trusts as a sample representing 43% of the total assets in the category, 71% of the these unit trusts outperformed their own benchmarks after fees over the five years to the end of 2016. This rose to 86% outperformance for the five-year period to 30 June 2017 – a very high proportion. These results should help to combat the misperception that active South African equity managers continually underperform their benchmarks.


30 September 2017

SA fixed-income assets still attractive


ince Nenegate, South Africans have had to digest a series of rather unpalatable political events. This year alone there have been the surprise Cabinet reshuffle, the so-called continued ‘state capture’ and the release of a punitive Mining Charter. In addition, there’s the economy’s entry into a so-called ‘technical’ recession, an unemployment rate of close to 28%, more downgrades looming and little on the horizon to signal an economic lift-off. It’s not surprising then that SA investors have a gloomy view of local assets, including SA bonds and cash. Cash is currently giving you just under 6% and historically has given returns between 5% and 12%. SA equity has offered investors a wide range of returns between a staggering -38% and 70%. Local investors’ perception of SA assets stands in sharp contrast to foreign sentiment: despite all the uncertainty facing South Africa, foreign investors are grabbing the yields on offer from South African fixed income assets with both hands due to the global context of a low-yielding environment. According to the Institute of International Finance, foreign inflows into emerging debt markets surpassed $100bn in the first half of 2017 and according to Deutsche Bank have reached an all-time high of $700bn. SA received its fair share – inflows totalled R30bn in the second quarter of 2017 and almost R45bn year to date! What do foreigners see that local investors don’t? Sanlam Investments Portfolio Manager, Melville du Plessis confirms that, despite the uncertainty in South Africa – or perhaps because of it – his team sees value in local fixed interest and credit markets. Unlike the US and the rest of the developed world, South Africa hasn’t seen bond yields moving lower. In spite of the economic and political uncertainty, South Africa still offers good quality credit plus a margin of safety. In Du Plessis’ opinion, investors are actually being compensated with a healthy premium for the level of risk taken (currently around a 8.5-9% nominal yield for SA 10-year bonds). “The type of yields on fixed interest and credit assets that we currently see in South Africa are actually quite rare in the global context. “In fact, SA long bonds are still offering among the highest local currency real yields in emerging


markets. Even if inflation settles at the top end of the 3% to 6% inflation target, a real return of 3% is still on offer from vanilla government bonds, and that’s before one starts investing across high quality companies and credits where you get an additional 1.5% to 2% above that.” This is particularly attractive given the low real returns available in global bond and equity markets. In addition, SA inflation is currently trending downwards, while inflation in developed market countries is picking up. South Africans could therefore see more rate cuts over the next year, which would be a boost to SA bond prices.

trough below 5.0% by the end of 2017 before picking up again. Upside risks stem from the potential for higher electricity tariffs next year, as well as unfavourable political outcomes, which could lead to a weaker rand.

The sleep-easy option Fixed income performs an important role in helping investors preserve capital and generate a more stable level of income. In this category, Du Plessis manages the SIM Active Income Fund, which aims to add outperformance to its cash plus 1% benchmark by tactical asset allocation between fixed income yielding asset classes across the entire duration and What happens to SA bonds if credit spectrum. Although its unit trust category they’re downgraded further? allows for offshore investment, the SIM Active If or when SA debt will be downgraded further Income Fund focuses only on local asset classes and should not be the main focus point, says Du Plessis. as such doesn’t hold any offshore assets. “At the moment SA’s credit default swap spread is “We believe this makes it a valuable local building already similar to non-investment grade countries block for investors, and allows investors to sleep and a large and sustained drop in asset prices is not easy – they have no exposure to the risks looming necessarily expected, and very dependent on the over global bonds currently,” Du Plessis says. global backdrop and specific local factors at play At an individual stock selection level, the Fund should further downgrades transpire.” actively pursues high quality bonds – all within the The SA government should theoretically always be security net of the SIM credit concentration risk able to service its own currency debt (as it’s in control management framework. The overall Fund position of the money printing press). But there are risks. The is relatively cautious and conservative – even by its mismanagement of an economy can manifest itself own historic standards – given the combination of in rising inflation, which could halt the decreasing continued market strength, political uncertainty interest rate cycle that the Reserve Bank signalled and fundamental weaknesses in the local economy recently with its first interest rate cut in five years with the market not necessarily reflecting the during July this year. fundamentals. Sanlam Investment Management (SIM), This approach to adding value has served however, expects inflation to trend lower and conservative investors well over the long term: Annualised* returns

SIM Active Income Fund

Benchmark – STeFI + 1%

Inflation – CPI

5 Years to 30 June 2017

7.37% p.a.

7.26% p.a.

5.78% p.a.

10 Years to 30 June 2017

8.50% p.a.

8.38% p.a.


Highest annual return


Lowest annual return


*An annualised return is the weighted average compound growth over the period measured.

“We believe SA fixed-income assets are still attractive within the global context of a low-yielding environment and locally, we see real yields of between 2% and 3% on offer against a backdrop of declining inflation,” Du Plessis says.

Melville du Plessis , Sanlam Investments Portfolio Manager



30 September 2017




he current international political scene can be described in simple terms. Basically the more powerful and omnipotent leaders appear, the more ignorant, stupid and embarrassing they actually are – and the higher they will rise! This applies to heads of state in the US, UK, North Korea and South Africa. Politicians as a group, at least those on top, do seem to have all taken a decisive step to the ‘right of stupidity’. Even if some of them happen to have gone to Oxford, they have never really passed the ‘common sense’ test, or for that matter that other key test: ‘Do they have any real friends?’ It is a truism that many of these leaders are actually members of the ‘Billy No Mates Club’, lacking as they do the charm and/or charisma needed to ‘make friends and/or influence people’. South Africa’s Jacob Z may actually have more personality and political savvy than all

A hypocritical oath the others put together. Kim J is just a spoilt brat; Donald T acts like he is at his own 10th birthday party. Theresa M, in the UK, is an ice lady but could barely survive a vote in her own party, let alone a secret ballot in the Commons! They all survive under vastly different versions of government. There is no secret ballot for politicians in the UK and US. When it comes to the party leadership, anywhere in the democratic world, politicians support their leader and sort their issues out ‘in house behind closed doors’. It is not an African political issue – parties expect loyalty and they control their MPs or, as is common in the UK, they ‘deselect’ them (boot them out!) We are now constantly fed fear by the media to control us. We then either eat up that fear and propaganda, absorbing it into our own metabolism, or we look past

GRANT MEINTJES Head of Securities, PSG Wealth


aintaining a well-diversified share portfolio is one of the best ways for any investor to preserve their wealth. Exchange traded funds (ETFs), are effective, simple and uncomplicated investment instruments. An ETF is a basket of securities (equities, bonds, commodities etc.) administered by an asset manager and listed and traded as one single share on the stock exchange. ETFs are passive investments and provide average performance of the asset class or index they track. The pros of ETF investing ETFs are a popular choice for investors who pay attention to costs, such as the total expense ratio (TER) of an investment. ETFs have a very low TER, considering how much equity exposure they offer. If you were to buy

the fear mongering at what we need to do to correct the wrongs of the past and the present, so that we can fix the future. Let’s be honest. The Brits cleaned out the gold and diamonds in South Africa for decades. The Nats spent our inheritance on a war machine that was never needed, while they also swept a great deal more value abroad into various tax havens, in complete contravention of their own laws. Our media scream their shock, horror and ‘absolute amazement’, at today’s South African politicians and leaders, as this new group now looks to create their own wealth – but let’s admit they had some really great teachers and very special role models. It is hypocritical to say that this mindset of illegally and unethically gathering wealth is characteristic of only South Africa. It is a political attitude that has existed since the time of the Greeks, Romans and Egyptians.

Diversifying a share portfolio with ETFs each of the underlying securities and hold them individually, the total cost would almost certainly exceed the cost of investing in an ETF. As they hold equities, ETFs usually pay a dividend to investors. ETFs are a good option for young investors to kick-start their investment journey. They can also offer the more advanced investor exposure to sectors they might not have in their existing portfolio, as well as diversifying their investments in terms of geography by adding some offshore exposure. An ETF is also quite easily accessible and has a straightforward cost structure. Their most attractive quality by far, however, is the combination of having a well-diversified portfolio, all wrapped up into one share, with the tradability and convenience of one share. How to take advantage of ETF investing ETFs can be the perfect stepping stone for novice investors with big ambitions. One investment approach, called a coresatellite approach, is a method of portfolio construction designed to minimise cost and volatility, while offering great diversification and the opportunity to outperform the rest of the stock exchange.

Using this approach, 50% of your investable assets are invested in your core ETF, while the rest is divided up between five or six other shares/securities, known as your satellites. In your core share, you track an index or asset class with an ETF, while the other groups will contain a mix – from large to medium sized to small cap investments. The idea of a core-satellite approach is to blend ETFs in a way that’ll offer the most attractive returns at the lowest possible risk. Slight variations on this are also possible and can be effective. The core, for instance, could make up less than 50% of your total assets, while certain satellites might be bigger than others to make up the difference. The contents of your core can be many different things. Some investors might prefer value stocks specifically while others would opt for growth. Some might choose to focus their core around listed property or government bonds or even commodities like platinum or palladium. Buying an ETF holds less risk than buying an individual share, as they have builtin diversification and the highest level of liquidity of any investable instrument on the market. Investing with ETFs is the easiest way to create a diversified portfolio in terms of geographic and sector spread at low costs, offering novice and advanced investors a solid building block for any portfolio.


30 September 2017

CHRIS RULE, CFA Head: Product and Client Solutions


Why advisers aren’t using passive investing

There are, without question, advisers who embrace the benefits of blending active and passive investing when constructing their client’s portfolios. However, these advisers are not in the majority. The majority of advisers dismiss the use of passive investing and do so for a number of preconceived assumptions. We encourage advisers to challenge these assumptions with rigour when next deciding the appropriate mix of active and passive investing.


e have set out what we believe to be the four most common misconceptions which may have led to the low levels of passive investing by advisers. We would like to challenge these beliefs by presenting some facts.


The Index is the average return therefore after costs; no matter how low the fee, I will guarantee my client below average returns. There is no doubt that offering your clients guaranteed below average returns will send them running. However, what if in reality the index wasn’t the average return? Returns till 30 June 2017

1 year

3 years

5 years

10 years

South African (SA) EQ General Peer Average 0.49%




S&P SA 50 Index





S&P SA 50 Index less Costs





Figure 1. Source: Morningstar, S&P Dow Jones Indices.

Figure 1 shows that the average active peer return is consistently lower than the index over 1, 3, 5 and 10 year periods. Taking this into account, by including passive in your portfolio mix you are able to achieve above average returns without taking on manager risk.


Passive is a compelling option when markets are rising. However this type of investing will always underperform when markets are falling, like the 2008 Global Financial Crisis (GFC). One would assume, as a result of being fully invested, passive will underperform in downturn markets. In contrast, active managers will be able to protect on the downside by moving into cash positions when there is a crash. In reality when assessing the ASISA SA General Equity category through the GFC of 2008, it is

clear that this assumption is incorrect: 61% of active managers underperformed the SWIX All share (1).


Emerging Markets, like SA, are inefficient and therefore active managers can easily beat the index. Across emerging markets, on average 72.51% of active managers underperform the benchmark; in developed markets, on average 74.21% of active managers underperform (2). The opportunity to use passive in your portfolio is not dissimilar when moving from developed to emerging markets. Equally SA is no different, wherein 76.98% of active managers underperform the benchmark.(2)


How can you allocate a client’s money to a fund that could hold an extreme single stock exposure? For example, look at Naspers which makes up 20% of the Top 40 Index on the JSE. The potential of excessive single stock exposure is often cited as an issue with market capitalisation indices in small, concentrated markets such as SA and is certainly noteworthy. However the evolution of indices in SA has led to the introduction of simple risk-based rules in many passive options. The S&P South Africa 50 Index simply avoids excessive single stock exposure by capping the largest share at 10%, an exposure that would not be unusual within an active fund. At CoreShares, we believe that a fair and sensible consideration of passive investing, without any mistaken beliefs, will enable one to create the best possible outcome for clients. 1) Source: Morningstar and FTSE/JSE Indices. SWIX All Share Index is used as a reference as it is the most commonly cited benchmark in the category. 2) Source:  Source: S&P Dow Jones Indices SPIVA Statistics and Reports, 31 December 2016




30 September 2017

NAZEER HOOSEN CEO, PPS ShortTerm Insurance


The broker’s role in business insurance

ith the industry facing multiple new initiatives and digital solutions, insurers now more than ever before have to ensure that their value propositions are appealing and competitive. Insurance companies not only have to demonstrate real value to brokers’ clients, but to the intermediaries too. This is particularly true in the business insurance space, where businesses are exposed to new risks every day and the role of the broker is vital. The relationship between brokers and insurers is set to evolve even more over the next few years. One thing, however, will remain constant: the broker distribution model will always stay relevant and significant within the South African insurance landscape, particularly within the business sector. The primary function of business insurance is to cover the costs of unforeseen insurable events which the business is exposed to. Insurers provide the products and the brokers evaluate and choose the relevant elements of the product that is suitable for their client’s portfolio. The broker is responsible for sourcing clients, building lasting relationships with his or her clients and offering them the insurer’s

products that will best cover the risks faced by the business. Business owners need proper and tailormade advice when it comes to insuring against business risks – it is not a one size fits all approach. Business insurance cover comes in many forms and sections to cover a variety of different risks and needs. There are various factors that determine what cover a client will need and the related premium will depend on factors such as the nature of the business, whether the business operates from a commercial building, home office and whether it has employees. A good business insurance product is highly flexible and offers the policyholder a vast selection of cover and extensions to ensure that the business is sufficiently insured against any potential financial loss. Some typical risks currently facing businesses include; fire cover, office contents cover, business interruption cover, buildings combined cover, accounts, receivable cover, public liability cover, glass cover, money cover, fidelity cover, accidental damage cover, goods in transit cover, business all risk cover, electronic equipment cover and theft cover.

Earlier this year, PPS Short-Term Insurance entered into the commercial insurance space to ensure that our graduate professional clients can receive end-to-end cover for both their business and personal insurance needs through the company. We broadened our offering mainly due to the fact that our clients, who are graduate professionals, own a private practice or a business and required a commercial insurance policy. This product is exclusive to graduate professionals and is supported by personalised service our members have come to expect from us. The PPS Short-Term Insurance business product provides cover for a graduate professional’s business, even if it is not linked to their qualification. For example, if a qualified medical doctor owns a restaurant, we will insure all those business risks even though it is not related to their specific profession. When it comes to providing business insurance cover, we at PPS realise that graduate professionals invest a lot of time and money into their business. Therefore, we want to assist brokers to ensure their clients have a tailormade solution to protect their business, their assets, employees and their own livelihood.

Global losses from disasters total US$44bn in first six months of 2017


ccording to preliminary sigma estimates, global total economic losses from natural catastrophes and manmade disasters in the first half of 2017 were US$44bn. That was well below the first half annual average of US$120bn of the last 10 years in economic losses and significantly lower than the same period a year ago, says reinsurance and insurance provider, the Swiss Re Group. Of the total losses in the first half of 2017, US$23bn were covered by insurance. A series of severe thunderstorms in the US caused some of the largest losses. Globally, around 4 400 people lost their lives or went missing in disaster events, compared with 4 800 in the first six months of 2016. Out of the US$44bn total global economic losses, natural catastrophes alone accounted for US$41bn in the first half of 2017, compared with US$110bn in H1

2016, while the remaining US$3bn came from man-made disasters. Global insured losses from natural catastrophes fell to US$20bn from US$30bn the year before, while insured losses from man-made disasters were US$3bn, down from US$6bn. While the number of disaster victims, at 4 400, was low relative to recent years, the toll may rise once estimates on the number of victims of Europe’s severe June heat waves are included. Biggest losses from thunderstorms in the US – most of them covered by insurance Severe convective storms (thunderstorms) in the US resulted in the largest losses in the first six months of this year. Four separate severe weather events from February to May each caused insured losses of more than US$1bn. The most

intense and costly event was a four-day long storm in May with heavy damage to property inflicted by hail in Colorado and strong winds in other parts of the southern and central states. The economic losses of this storm alone were US$2.2bn, with insured losses of US$1.9bn. A high number of smaller storms and other weather events (e.g. floods) in the US in the first six months of 2017 led to insured losses of around US$16bn out of the overall US$23bn in insured losses. “Fortunately, in the US, most households and businesses are insured against wind risk so they are financially protected when severe storms strike,” says Swiss Re’s Chief Economist, Kurt Karl. A year of weather extremes The largest and most costly insurance event outside of the US was Cyclone Debbie, a

Category 4 tropical cyclone that hit the north-eastern coast of Australia in late March. Wind gusts of up to 263 km/h and widespread flooding in central and south-east Queensland and north-east New South Wales during the following days led to insured losses of US$1.3bn. Other large events included floods in Peru, and severe frost damage in late spring in the south-eastern part of the US and in Europe. At the beginning of the year, there was also a cold spell throughout Europe that claimed dozens of hypothermia victims. This was followed by a summer of heat waves and record temperatures in several European locations, making 2017 so far a year of weather extremes. High temperatures and dry weather have continued through the northern hemisphere’s summer season, igniting wildfires in many parts of the world.




30 September 2017

GRACE WINTER Marketing Manager, FMI


wner of a plumbing business, Damian Souchon, 26, is one of our youngest policyholders. In 2016, he fractured his leg in a motorcross training accident and was unable to work for a total of eight months. Prior to his accident, he was a one-man-band, doing all administrative and manual work himself. Due to his policy with FMI, he was able to employ two men to keep his business going when he couldn’t work himself. Since his claim, Damian’s business has grown and he now permanently employs three people.  Financial advisers have a critical role to play in raising public awareness of the importance of income protection. It was Damian’s parents who recommended that he see their adviser when he started his business – and the adviser was instrumental in Damian’s decision to take out an FMI policy. Many young working individuals are uninformed and don’t consider taking out income cover when they start working – a time when their careers

Five ways to connect with millennials are just beginning and their future income is at its highest potential. According to the most recent ASISA Gap Study, South Africans are still dangerously under-insured with a 63% life cover gap and a 55% disability cover gap – most of them falling in the 18 to 35-year age group. So, how do we drive this important message home to millennials to help them understand the essential need for income cover, in an industry where many find product offerings and the whole decision-making process intimidating and quite complicated? Here are five simple ways to connect with millennials in today’s world: 1. These individuals have grown up in an electronics-filled world and spend a great deal of their social time in the digital space. Today, mobile is the most relevant platform to connect because more time is spent on mobile phones than any other platform, with the average millennial checking their phones 150 times per day. If you have

a powerful message to communicate, there’s a stronger chance a younger audience will connect with and share your message through a digital or social platform, because that is where they ‘hang out’. 2. Millennials are continuously bombarded with marketing and advertising messages. To get and keep their attention, your communication needs to be short and interactive. Video, in particular, is very engaging and has grown exponentially in recent years as a communication medium. 3. Youths want to be part of the conversation and dislike one-way conversations where they feel a product or brand is talking at them, rather than with them. They want customised and personalised communications that resonate with them and with which they can interact. 4. They value brand relationships and are drawn to brands that they view as transparent and authentic – and products that offer solutions that

address their needs. 5. Don’t underestimate the power of word of mouth. Millennials define themselves by the products they use. If they find a brand or product they believe in, they will tell everyone – both face-to-face and on social media. They have the potential of being indispensable brand ambassadors. FMI’s #21Lives campaign captures the stories of 21 of our policyholders in short documentary-style videos. The stories help raise awareness of the impact of injury or illness, they simplify the message, and they humanise insurance in a way that relates to the 25–35-year old generation. In sharing these videos, financial advisers have a powerful tool to connect with people in today’s world, and ultimately, change how life insurance is perceived and sold. Go to for more information about the campaign or follow FMI on Facebook.

I STARTED MY OWN BUSINESS AT THE AGE OF 21 AND I WAS DOING ALL THE WORK MYSELF. WITHOUT FMI I WOULD HAVE BEEN IN BIG FINANCIAL DEBT. Young entrepreneur, Damian Souchon, runs his own plumbing business. Soon after starting his business, he suffered a leg fracture in a motorbike accident and was unable to work for 8 months. Without his FMI policy, he would have received no income. Instead, he was able to employ 2 men to keep his business going while he was recovering. Life is unpredictable. That’s why we protect your future plans and dreams.

To watch Damian’s story and others, go to: FMI is a Division of Bidvest Life Ltd, a licensed Life Insurance Company and authorised Financial Services Provider FSP 47801


30 September 2017

Survival rates demand comprehensive severe illness cover


hile severe illnesses such as cancer, heart attacks and strokes are becoming increasingly prevalent, the good news is that the survival rate of these events continues to improve. Globally, the current five-year cancer survival rate is 62% and increases sharply to 83% in patients aged 15 to 29. There is a similar trend concerning hospitalised heart attacks and strokes, with 80% and 85% of patients surviving the event respectively. However, Jaco Gouws, Protection Product Head at Old Mutual, says that the rising prevalence and increasing survival rates of these severe illnesses make it important that South Africans assess their severe illness cover. “Regardless of how responsibly you live or how healthy you are, severe illnesses such as cancer, heart attacks and strokes befall without discrimination and can have a dramatic impact on your lifestyle. Compounding this risk is the fact that people are living longer and increasingly surviving events such as heart

attacks and strokes, thanks to continuous advancements in modern medicine. This increases the likelihood of living with the effects of a life-changing illness, experiencing a recurrence of an illness, or even contracting another illness.” Overcoming a severe illness is not only physically and emotionally taxing, but expensive too, says Gouws. “Surviving such an event can be extremely costly, and we believe that in the fight back to good health, concerns about finances or bills should be the furthest from your mind. This is why you need to be guided by a professional financial adviser and ensure optimal cover levels and benefits. “This will ensure 100% peace of mind in times of anxiety and protect you and your family from having to pick up the exorbitant costs associated with treating a severe illness, as a result of not being covered fully,” he adds. To ensure that clients have truly comprehensive cover that pays out when they need it the most, Old Mutual recently

launched ‘100% Peace of Mind’ – the latest enhancement in its severe illness cover offering. “After noticing a worrisome increase in the prevalence of severe illness claims over the years, Old Mutual enhanced its severe illness cover to include even more medical conditions that customers can claim 100% for and improved the definitions of existing conditions. “Old Mutual has a distinguished history of innovation, of which we’re very proud. In 2001 we brought you 100% only benefits, we were one of the first companies in 2004 to introduce the option to claim multiple times on a benefit, and in 2009 we were the first company to launch severe illness benefits that pay 100% on all the Standardised Critical Illness Definitions Project conditions. 100% Peace of Mind is therefore just our way of continuing this tradition of continuous innovation and improvement,” Gouws explains.  He adds that this enhancement comes at no extra cost to the client.


he latest edition of Health Care in South Africa, a 448 page overview of the country's health care sector, describes the financing of the sector, its regulatory environment and key participants. The book has found a wide audience amongst clinicians, administrators in the healthcare sector, financial and medical advisers and students. Statistics sourced from previous editions of the book have been used in high-level company presentations and quoted at the Health Commission Inquiry. The book is accredited for Continuing Professional Development points by the Financial Planning Institute and is on the recommended reading list of several diploma and graduate courses. Health Care in South Africa is edited by Liz Still and published by Profile Media. This year, Dr Debbie Pearmain, a private legal consultant and former Special Advisor to the Minister of Health, has contributed to the publication. Regular contributors include Val Beaumont, an

industrial pharmacist who has worked in the pharmaceutical sector for over 40 years, management consultant Angela Mackay and researcher Kira McDonald. Highlights of the new edition include the following: • A special feature on gap cover products and primary health insurance • New chapters explaining the difference in terms and conditions of products sold under the Long-Term and Short-Term Insurance Acts. Standard features of the book include: • An explanation of alternative models of health systems structure and financing • South Africa’s health and economic indicators compared with peer countries • Latest medical scheme statistics from the Council for Medical Schemes • Interviews with selected principal officers of medical schemes • Summaries of relevant court cases • Lists of the 270 acute and 26 chronic prescribed minimum benefits.


The definitive guide to health care in SA



Healthcare funders face fraud and abuse


ealthcare funders, which are required to protect resources to ensure sufficient funds are available to meet the needs of their members, cannot afford to be too trusting as fraud and abuse are an unfortunate reality confronting the industry. It is therefore fortunate that advanced technology and an artificial intelligence engine have been developed to detect improper claiming practices. “In our experience, the majority of South African healthcare service providers are truly dedicated to applying their expertise to improving patients’ health and preventing disease progression,” says Wilma Liebenberg, Chief Executive Officer of Knowledge Objects Healthcare (KOH). “Medical schemes demand no less for their members, and this is why healthcare professionals and schemes work together to ensure that all members receive equitable and appropriate evidencebased care. This being said, human error sometimes arises and, as has unfortunately been seen, human frailty means that schemes need to be on high alert to prevent healthcare fraud.” Inappropriate claims Many medical schemes experienced much higher claims in 2016, which in turn tends to drive membership contribution increases. In order to ensure that medical scheme resources are only used to fund legitimate claims, inappropriate claims must be identified proactively and managed quickly and effectively. “We recognise that healthcare service providers are not coding specialists. It is therefore not surprising that they might make mistakes from time to time. Regrettably, yet understandably in light of fraud blighting the industry, some medical schemes tend to treat these providers with quasi-criminal suspicion

until they are proven innocent without affording healthcare professionals an opportunity to rectify the mistake. Rather, the healthcare funding industry often relies on a small subset of rejection messages on statements that have no definitive meaning.” KOH’s approach relies on providing the maximum amount of information in order to ensure claims submitted are accurate and factual. Advanced artificial intelligence software known as HealthPower™, which pre-emptively flags inappropriate claims, is used to detect risk patterns while assisting in identifying suspicious activity. “Our technological solutions mean that incorrect prescription submissions, bundling or unbundling of treatment codes, ‘code farming’ and over-servicing are detected using an embedded rules engine for real-time protocol application to prevent incorrect payments being made,” Liebenberg explains. Claims auditing Claims auditing identifies potential coding and billing issues, including outpatient coding errors for example, to distinguish inappropriate or potentially fraudulent claims. “Essentially, the system detects and prevents fraudulent or ‘phantom’ claims through communication with members on all transactional line-level records. In addition, claims are adjudicated against comprehensive best practice clinical, fraud and coding rules, which are backed by experts from all medical disciplines,” she notes. “This means there is no need for spy cameras or private investigators, which we have recently heard allegations of, and no duplication of administrative processes. All rejection messages are a reflection of

the actual protocols and clinical rules triggered per line transaction.” She adds that complementary insurance products, such as gap cover and hospital cash back daily plans, have also been subjected to increasingly sophisticated abuse, including leveraging medical scheme claims in an attempt to piggyback fraudulent claims for these types of insurance. “As Knowledge Objects Healthcare (KOH) provides technology solutions across these product classes, it is able to cross reference rule firings for further algorithm enhancements.” Liebenberg explains that KOH’s approach is an important deviation from the industry norm, where data trawling and auditing of outliers is traditionally performed retrospectively and in many instances even manually. “In contrast, the focus of KOH is proactive management, with 90% of our analysis being conducted at this level. In addition, we make use of retrospective algorithmic rules to continuously analyse big data and detect trends.” These complementary systems further enhance the real-time rules engine, and engagement with healthcare service providers and members enhances the medical care provided.

Wilma Liebenberg, Chief Executive Officer of Knowledge Objects Healthcare (KOH).

NHI could heap pressure on taxpayers


he need for universal healthcare in the country has become a necessity as economic uncertainty and the rising cost of living continue to take their toll on South Africans. While the National Health Insurance (NHI) has the noble intension of creating a healthcare system which is not only affordable but accessible to every South African, it could heap additional unnecessary pressure on the South African taxpayer. According to the White Paper, the funding of the NHI will rely on various mandatory pre-payment sources, primarily based on general taxes.

However, the key to a sustainable and free healthcare system in South Africa lies with an efficient public health sector, according to Profmed Chief Executive Officer, Graham Anderson. “While the NHI is striving to provide affordable healthcare to every South African, the financial implications on the taxpayer could be extremely detrimental. We believe that there is sufficient funding available in the public health sector to provide quality healthcare at no cost to the unemployed and those living under the poverty line,” says Anderson. With over 4 200 public health facilities in South Africa, the

sector is more than capable in ensuring free quality healthcare for all. “When the public healthcare sector is running efficiently and providing the correct level of service and care it will be able to deliver primary healthcare to the South African public,” explains Anderson. Despite the general perception that the quality of healthcare provided by public institutions is lacking, Anderson stresses that there are various public health institutions that are able to currently provide quality healthcare. “There are centres of excellence which attract people who can afford medical schemes. Examples

include the burns unit at Chris Hani Baragwaneth, in Gauteng and the Red Cross Children’s Hospital, in the Western Cape.” He is adamant that if the public health sector is running effectively enough, additional services can be added and will therefore create a natural progression to full social health insurance over time. “It should essentially begin by covering primary healthcare as well as preventative benefits, like screening for high blood pressure, blood sugar and other health issues. This will see medical schemes working in tandem with NHI which will save the consumer money by bringing down consumer contributions.”

30 September 2017


FORBES AFRICA: AFRICA’S BILLIONAIRES BY CHRIS BISHOP As Forbes magazine heads towards its centenary in 2017, this is a timely look at how the work of entrepreneurs can influence lives in Africa and create the jobs that empty state coffers can no longer afford. Written by the founder of Forbes Africa, this is a masterclass on how the brightest and most successful entrepreneurs across Africa made their billions.  Chris Bishop gets up close and personal with the biggest names in business on the continent: Aliko Dangote, Patrice Motsepe, Nicky Oppenheimer, Christo Wiese and Stephen Saad, among others. These are the stories of how they not only survived, but thrived, in the fast and furious world of African business: the penniless priest who became a steel baron; the barefoot apple-seller who turned into a mining millionaire; the ‘knocksman’ who went from running dice games and dealing drugs to running a city. This is a rich tapestry of stories about the super-wealthy and the qualities that make them successful, in arguably the most challenging economic arena in the world.

The Krugerrand turns 50

FATE OF THE NATION BY JAKKIE CILLIERS What does our future hold? Will the ANC split within the next five years? Could the DA rule the country in 2024? Will the EFF form an alliance with the ANC? What should we do to make our economy grow at levels that will impact on poverty and inequality? Will we become a more tolerant or a more violent society? In Fate of the Nation, scenario expert Jakkie Cilliers answers all these and many other questions. He has developed three detailed scenarios for our immediate future and beyond – Bafana Bafana, Nation Divided and Mandela Magic. According to Cilliers, the ANC is in many ways paralysed by the power struggle between what he calls the Traditionalists (supporters of Jacob Zuma) and the Reformers (led by Cyril Ramaphosa and others). This power struggle leads to policy confusion, poor leadership and general ineptitude in the civil service. Key to which scenario will become our reality is who will be elected to the ANC’s top leadership at the national conference in December 2017. Whichever group wins will determine what our future holds. We could also see a compromise grouping being selected, Cilliers says, in which case the Bafana Bafana scenario – where we simply muddle along as a country – is the strongest possibility. This is a book for all concerned South Africans.



t’s survived apartheid, the shifting fortunes of gold, and still features strongly in our collective psyches. But as it turns 50, just how relevant is the Krugerrand? The Krugerrand was first minted in 1967 to promote South African gold, and was the world’s first coin aimed specifically at investors rather than collectors. It’s named after Paul Kruger, the Boer leader who led the Transvaal Republic against the British in 1899. An investment in Krugerrands is essentially an investment in gold. And, says Shiraaz Abdullah, Equity Analyst at Sanlam Private Wealth: “Gold elicits divergent reactions in the marketplace depending on who you speak to.”

He adds: “Some carry a deep disdain for it as a non-yielding asset because it doesn’t have a related cash flow (dividend or interest), while others value the allure of a safe-haven asset.” Indeed, not all that is gold glitters. There is no method to value gold as it produces no cash flows and there are no rent or interest payments. Without those, it’s impossible to produce a fair value estimate for an asset. “However, given gold’s 5 000year history and its track record of outperforming equities in times of panic – which generally occur when equities are at elevated levels – we have some exposure to the yellow metal in our conservative multi-asset class portfolio,” Abdullah adds.




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Money Marketing September 2017  

MoneyMarketing’s September issue contains our final Offshore Investing Supplement for 2017. We also take a look at why the majority of fina...

Money Marketing September 2017  

MoneyMarketing’s September issue contains our final Offshore Investing Supplement for 2017. We also take a look at why the majority of fina...