INVESTSA FPI May 2012

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3INVESTSA

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10 profiLeGary Palmer, CEO, Paragon Lending Solutions

12 ALternAtive inveStMentS focUS

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3234

06 cfD’S riSe froM tHe ASHeS of SingLe Stock fUtUreS

HeAD to HeADChief Investment Officer, Blue Ink / Head: Investments, Sygnia Asset Management

18LotS of vALUe in tHe Mining SectorS - BUt tHe HArD pArt iS Mining it oUt20

privAte eQUitY A viable alternative investment08

08

06

INVESTSA4

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

Investors are still shy of equities. It’s a pity as local shares on the JSE are offering more than decent returns, 5,74 percent over the first

quarter of the year. But there are many other ways to construct an investment portfolio using products that might be equity based, but have other redeeming features, at least that’s what is hoped for. This issue explores many of those options, and how they can be invested in. It’s a truly valuable edition for do-it-yourself retail investors and financial advisors.

Maya Fisher-French kicks off with an enlightening explanation of why contracts for difference (CFDs) are replacing the earlier darling of the market, single stock futures. For the right type of investor these could be a valuable addition to an investment portfolio.

Maya also takes a look at investment advice and the associated problems with products sold by tied agents of investment firms or providers of those still largely suspect products, annuities.

Alternative investments are very much the theme of this edition. Carla de Waal of Novare Investments tells us of the value of fund-of-hedge funds in a portfolio, while Soula Proxenos at International Housing Solutions takes a look at the rush into private equity investments in Africa.

I dip my toes into private equity investments as well, deciding that

for the more wealthy investor it’s definitely an investment that should be included in a diversified portfolio.

I also take a look at mining shares, concluding that many offer much value but the problem is finding the best mining shares. This is where the well-informed advisor can play an import role for clients.

Gold is on every one’s mind. Merina Willemse at the Efficient Group Ltd presents a convincing explanation for the why the gold price is going up, and why it remains a good investment. Peter Major, mining consultant to Cadiz Corporate Solutions, gives the expert view on why investors should hold onto mining shares as an investment.

Other alternatives are explored as well. Mike Brown, MD of eftSA.co.za, offers tables showing how many ETFs and ETNs have beaten the JSE, while Mariette Warner of Absa Asset Management gives an overview of the listed property market. On the Profile page Gary Palmer, CEO of Paragon Lending Solutions, offers his advice for investors in commercial property and what they need to watch out for.

There’s a lot more good stuff to read. The advice will prove invaluable for investors and advisors looking beyond straight equity investments.

INVESTSA6

MAYA fiSHer-frencH

Since its peak in 2008, the single stock futures market has fallen from around R60 billion open contracts at any one

point, to around R2 billion today. Maya Fisher-French explores the demise of the

single stock future industry against the rise of CFDs and what it means for retail

investors.

CFDs rise From the ashes oF single stoCk Futures

There was a time, before the great financial crisis, that single stock futures were the belle of the ball – everyone wanted to dance. Allan Thompson, the then director of equity derivatives trading at the JSE, went so far as to predict that one day all traders would trade SSF in lieu of spot prices – single stock futures were the future and ordinary trades would cease to exist. After all why would somebody want to put all their capital into a share when they could just put down a deposit and leverage their position for even greater exposure; why buy R50 000 worth of Sasol when you could buy exposure to R500 000?

But then the great crash came and, although SSF can be used to hedge the market, most people were on the wrong side of the trade and significant losses were made. Absa’s unintended acquisition of stakes in Pinnacle Point, Blue Financial Services, Sekunjalo Investments, and ConvergeNet Holdings was one of the big news stories in 2009 when clients were unable to make good on their positions.

7INVESTSA

Although not good news for Absa, it highlighted the protection that investors had when trading SSFs. The fact that SSFs are regulated and traded on the JSE with major institutions acting as market makers has always been the major advantage of SSFs over CFDs (contracts for difference); as an investor you always knew that your trade would be honoured. CFDs, on the other hand, are effectively over-the-counter instruments and remain unregulated. As a result they did not attract the same level of interest as SSFs, despite the fact that they are possibly the superior financial instrument. Brett McLaren, South Africa’s joint MD of Saxo Capital Markets in South Africa, argued that this is all changing and CFDs are making a major inroad into the SSF market which is in part why SSFs have failed to recover even modestly, to their pre-crisis levels.

Brett McLaren and Richard North, working at Nedbank Capital at the time, along with Arthur Buchner from BOE, were instrumental in the creation of the single stock futures market in 2003. “At the time warrants were a big market but then they blew up. Banks were greedy and investors never understood the product,” said McLaren, who explains that the problem with warrants was that investors fell victim to price decay known as ‘theta’. The saying, “theta, theta profit-eater” warned against the fact that when the underlying share prices of the warrants remained constant, the price of the warrants still fell as they drew closer to expiry, due to the time value of money. “This left a bad taste for investors who had got raped on bank fees,” said McLaren. However, investors still wanted to find a way to have exposure to equities without having to put down all the cash. They also wanted a product that would allow them to make money in both a rising and falling market. But they needed something simpler to understand.

Single stock futures started to gain prominence in 2003. The investor has to pay only around 10 per cent of the actual value of the share yet has close to full exposure to the price movements of the underlying equity. Although investors would pay interest, which did reduce profits over time, it was more transparent and resulted in a far less aggressive price decay compared to an option which was used to structure warrants.

The one drawback of a single stock future is that the investor does not receive the dividend and it is this that has ultimately led to its fall in popularity and the rise of the CFD as a favoured instrument.

McLaren explained that because the investor will not receive the benefit of a dividend, the market maker for the single stock future factors in the dividend when making the prices. When dividends are declared, all things being equal the share price should fall by the dividend declared; however, the shareholder would be compensated by having received the dividend. As this was not the case for the SSF investor, the market maker would discount the price of the SSF to factor in the dividend based on forecasts.

But then the great crash came and, although SSF can be used to hedge the market, most people were on the wrong side of the trade and significant losses were made.

For example, if a single stock future traded at R10 and the analysts forecast was for a dividend of 50c to be paid, the market maker would discount the price of the SSF by 50c. If the dividend was not as forecasted, then either the market maker or investor would lose out. The investor would lose if the dividend was higher than expected as the share price would fall by a greater value and the market maker would lose if the dividend was lower than expected as it had offered a discount. McLaren said traditionally the market maker did off-market trades and kept records of dividends. If there were any changes in expectation around the dividend then the market maker would make an adjustment and correct the situation so there were no gainers or losers.

However, with the monumental success of SSFs, the JSE wanted to regulate the market and forced the market makers to go live on screen for transparency. McLaren said now the buyers and sellers became anonymous. As a result it became impossible for investors and market makers to balance the books on dividend payments as no-one knew who was selling to whom.

This also allowed all players to see the pricing of the SSF and therefore what dividend was being forecast. This opened up a massive opportunity for arbitrage if one market maker’s view on the dividend forecast differed from another. “The banks were now focused on making windfalls on the dividends and single stock futures were traded based on views on dividends. The man on the street got

clobbered. Historically we dealt with clients directly, if we got it [dividend] wrong, we would settle it. The open screen makes it impossible; you don’t know who you are dealing with,” said McLaren.

While investors became disenchanted by SSFs, the emergence of big players in the CFD market started to put this previously poor cousin on the map. Unlike SSFs which settle every quarter, CFDs – which are simply a contract to pay out the difference between two prices – is a one-day settling contract. Profit and losses are calculated and settled daily making the pricing extremely transparent and removes any potential price decay. Most importantly, the investor receives the dividend. McLaren argues that CFDs are far more transparent instruments, “Interest is transparent and you receive the dividend. Price discovery is transparent. The price it closes at is essentially your profit and loss. You don’t have the anomaly with potentially three months’ interest priced into the contract. It’s a very simple instrument,” said McLaren.

It is only because they are unregulated that they have not been as popular as SSFs. Until recently, CFDs have been run by fairly small outfits like Global Trader and Dealstream which have not had the large balance sheets to fund deals which have gone wrong – and there have been many cases where deals went sour. Global Trader’s London office was effectively closed down by a trader who could not meet a margin call; and Dealstream hit headlines in 2008 when dramatic falls in the share price of companies found traders unable to meet their margin calls.

McLaren said now with large market participants like the banks locally, and IG Markets and Saxo Bank internationally moving into the local CFD market and effectively underwriting the deals, the risk has dropped significantly for traders. Not only are there now large balance sheets underlying the trades, but the money and research that has gone into the trading technology has also reduced trading risk. Investors’ positions can now be closed before significant losses are made.

One of the drawbacks of trading over-the-counter is that the underlying share price was not tracked intraday. One bad day on the markets and a client can be wiped out, forced to pay in a massive margin. “Saxo Bank has developed systems that make sure that a client knows their profit and loss situation on a second-by-second basis,” said McLaren, who added that the system will actually close a contract before the client’s margin is wiped out and he goes into deficit.

With the risks around CFDs minimised and traders burnt by the arbitration of single stock futures, CFD s seem set to be the new preferred trading instrument – that is until an even better one is developed.

INVESTSA8

SHAUn HArriS

privAte eQUitY

A VIABLE ALTERNATIVE INVESTMENT

8

BY SHAUn HArriS

“Exit is one of the biggest questions we ask ourselves

as we enter into a deal. We try and

invest in businesses

that will have

strategic appeal to

a trade buyer.”

9INVESTSA

More investors have exposure to private equity funds than they realise. South African retirement funds are increasingly looking at private

equity as an alternative investment. These funds underscore just one reason why private equity has become not only a viable alternative investment, but also an increasingly sought-after asset class. Volatile stock markets and expected lower returns from equities have moved the investment spotlight to private equity. Investment styles differ between the private equity firms but in the main they invest in companies not listed on the JSE, or other stock exchanges in Africa where much of the focus is. These investments will often perform contra-cyclically to listed company shares.

Last month the Public Investment Corporation (PIC) said it would probably invest up to US$3.8 billion in private equity in Africa. One reason for this, said CE Elias Masilela, was because the PIC was looking for higher returns outside its home market in South Africa. “African markets are characterised by thinly listed equities. What will likely drive us going forward are private equity, developmental funding and property,” he said. Many investors and their financial advisers, though, will want to invest in private equity beyond a retirement fund. There is much that makes private equity attractive, particularly in current global and even local stock market conditions.

Private equity firm Actis says it plans to invest around US$300 million a year in Africa, with much of that going to bigger markets like South Africa. Last year, Actis was the lead manager in the US$434 million buy-out of South African company Tracker, which makes vehicle tracking equipment.

This is the type of investment private investors and financial advisers will be looking for but will often find difficult to access. Unlisted companies sometimes have over-the-counter (OTC) shares available, but these companies are in the minority and making an investment is often limited to institutional investors. A private equity fund then becomes the route into attractive private company investments.

Like equity fund managers, private equity managers will conduct due diligence examinations on unlisted companies that look worth buying. This will include the usual financial metrics like turnover, cash flow and sustainability of future performance. Unlike equity fund managers, though, they will not have to consider share price performance and valuation based on the stock market. Valuation will instead include the private company’s competitive advantages and the industry it operates in.

Once the investment is made, the private equity firm will back the acquisition, sometimes by providing capital if needed or by playing an active role on the board of the company if the percentage size of the acquisition is large enough. Once again the investment process will differ between different private equity firms but typically they are quite long-term investors.

Generally there are two exit strategies: the company will be listed on a stock market and an initial public offering (IPO) held for the private equity fund to realise its profit; or there will be a trade sale, sometimes back to the original owners of the business but more likely to a competitor in the industry.

“Exit is one of the biggest questions we ask ourselves as we enter into a deal. We try and invest in businesses that will have strategic appeal to a trade buyer,” said John van Wyk, co-head for Africa at Actis. “If you’ve made the right acquisition initially, there’s no shortage of potential trade buyers when you come to sell.”

This is where the financial adviser seeking a good private equity deal for an investor client comes in. They have to learn about the different investment styles of the private equity firms – there are about 40 in South Africa – and try and judge when they might exit the investment. It’s very much about getting into the rhythm of the private equity investor.

Alternatively, they have to learn to rock ‘n roll with the fund. The foreign US$200 million 8 Mile private equity fund has entered the market in Africa, owned and headed by Bob Geldof, the Irish former front man of the Boomtown Rats. Geldof is well known for the poverty relief

concerts he has arranged in Africa, most notably Live Aid in Ethiopia. His fund will probably be looking at similar types of commercial investments in Africa, and South Africa could also be on the stage (just don’t contact the Geldof fund at the beginning of the week. They don’t like Mondays).

The big question for financial advisers is how to get clients into a private equity fund. Some are limited to selected partners or institutional investors. When private investors are included it’s often at the top end of minimum investment capital, very much the high net worth investor.

But there are more accessible and affordable options. Old Mutual Private Equity looks after more than R12 billion in private equity assets. Some of its funds were launched to specifically target smaller retail investors. There’s the Old Mutual Private Equity Direct Investments that invests directly in private companies. Past acquisitions include well-known South African companies like Consol Glass, Life Healthcare and the Tourvest Group. However, it’s the Old Mutual Private Equity Funds of Funds that advisers should be looking at. As the name implies, it invests in a range of other private equity funds. There are three of these funds available, all open to private retail investors.

Ethos Private Equity, which is raising a sixth, US$750 million fund, also targets private investors, but very much in the high net worth category.

What sort of returns can investors expect from private equity funds? Certainly much higher than the stock market if the fund manager has made the right investment. Once again, though, returns will vary between the different private equity funds. Much depends on their investment goal and the investment time horizon.

Here’s an example. Ethos sold its remaining 12.4 per cent stake in Holdsport last month. Holdsport, which was listed on the JSE, had an IPO in the second half of last year. Investors will know the listed company through its retail distribution chains Sportsmans Warehouse and Outdoor Warehouse. Holdsport listed its shares in July last year at R31 and when Ethos concluded the deal on 3 April, it was trading at R41.95. That’s a return of around 35 per cent in less than a year. What investors must realise is that while private equity returns can be very attractive, some are higher risk than equity investments. It all depends on the private equity fund manager making the right investment.

Returns aside, private equity will add important diversification to an investment portfolio. It’s a growing asset class that investors and financial advisers need to consider.

“Ethos Private Equity, which is raising a sixth, US$750 million fund, also targets private investors, but very much in the high net worth category.”

INVESTSA10 INVESTSA10

profiLe | CEO | PARAGON LENDING SOLUTIONS

g A r Y P A L M E R C E O | PA R AG O N L E N D I N G S O LU T I O N S

11INVESTSA

“Commercial property investors must make sure that the building has good tenants with long leases

and should conduct careful analysis on tenants in terms of due diligence.”

1. You have been ceo of paragon for two-and-a-half years now. Has the economic turmoil over this period had any impact on your business?

The economic turmoil has negatively affected most businesses in South Africa over the last few years. The level of property developments has decreased over the last two years and property prices − particularly residential property prices − have dampened given the falling demand and over supply.

All lenders require activity in the market so naturally all lenders will do better in a better economic environment. However, due to the effects of the recession such as bad debts and increased regulations, many banks have reduced their level of lending to the market. There are still credible clients looking for funding who have been declined by the banks and as a result of this we have seen the level of deals doubling over the last year.

Surprisingly many of the deals referred to Paragon have come from the banks. I think the general acceptance of non-bank lenders has increased in the past few years and we can see this from the increasing number of referrals we are getting.

2. Has the current economic environment increased the need for asset-backed lending by companies?

Yes, definitely. There has been a noticeable increase in the level of credible non-bank lenders in South Africa, following the international trend in this direction. Banks are focusing much more on non-interest income and, when banks do lend, they assess deals in terms of serviceability and not the value of the asset. This shift in focus of the banks has led to an increase in asset-based lending globally and more recently in South Africa.

3. What do you think are the biggest challenges for the commercial property industry in the next 12 months?

I think the biggest challenge is to reduce the level of vacancies and keep existing tenants

happy in commercial properties. However, buyers struggling to get access to funding to purchase properties is also a concern at the moment. Furthermore, fundamentals are placing downward pressure on rentals and bottom line returns even at national level. As a result, vacancies could rise and we are not likely to see the escalations that we have seen in the past.

4. Do you think property still makes a good investment in the current climate?

Yes. Interest rates are at an all-time low. Prime is currently nine per cent and some commercial properties are yielding in excess of 11 per cent so there is positive gearing. However, one still needs to make informed decisions. As in the famous saying; “You make money in property when you buy not when you sell.” Therefore, it makes sense only if you are buying well. Commercial property investors must make sure that the building has good tenants with long leases and should conduct careful analysis on tenants in terms of due diligence.

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

After qualifying as a CA, I went straight into banking, working for Investec. It was here that I got involved in the property investment industry. My advice for people entering into property investing industry now (in terms of making good investments) is to:

• Ensure that you or your client has the money to put down a sizeable deposit.

• Conduct due diligence on property − especially in terms of understanding the tenant and the area.

• Use market information. There is a lot of information in the market about property, e.g. Rode report, Lightstone index, property valuers, etc. that provide very valuable market insight.

• Understand all the regulations that may affect the property such as the CPA, NHBRC, etc.

• Assess whether you are able to obtain bank funding.

• Start small if you haven’t been in the market already.

• Understand the cash flow of the property. Most of the income will service the loan so don’t expect to survive on the income from the property in the first few years.

6. How do you wind down from the pressures of your position?

I spend most of my free time with my family. I also enjoy playing sport – running, tennis and going to gym.

7. How do you define success?

I think success is when you can rely on your experience and instinct to make good decisions and set ambitious goals – and when you are prepared to put in the hard work that will be necessary to achieve that goal.

8. finally, if you had r100 000 to invest, where would you put it?

The first thing I would do is to speak to a financial adviser. Having done this, and because property is my game, I would probably use the money as a deposit to purchase a property.

INVESTSA12

Private equity investment in Africa

is rapidly gaining traction, as

rock stars and global institutional

investors realise the value and

potential of stimulating economic

growth in emerging markets.

Known for his global anti-poverty crusade

in which he asked rich countries to forgive

Third-World debt, it was recently revealed

that Irish rock star Bob Geldof had raised

$200 million for his 8 Mile African private

equity fund, aimed at promoting private

enterprise. “Africa is now a continent of

extraordinary business and investment

opportunity,” said Geldof in a statement.

“Private equity is one way to support the

enterprise and dynamism of the people of

the continent and help provide the jobs and

skills that are needed.”

Geldof’s announcement followed hot on

the heels of a study conducted by the Abu

Dhabi-based Economist Intelligence Unit,

which found that more than half of 158

institutional investors surveyed saw Africa as

the most attractive region to invest in the next

decade, with a third expecting to commit

at least five per cent of their portfolios to

the continent by 2016. According to the

survey, private equity and infrastructure were

expected to outpace commodities as the best

asset classes for investment in Africa in the

next three years.

“This study confirms our observations and

predictions over the past five years, since we

embarked on private equity investment in

the affordable housing sector on behalf of

global institutional investors in South Africa,”

said Soula Proxenos, managing partner of

International Housing Solutions (IHS).

IHS, one of the pioneers in private equity

investment in South Africa, recently reached

the milestone of committing R1.1 billion

in the development and construction of

affordable housing in the country. Proxenos

said that private equity investment in African

projects is rapidly gaining the deserved

recognition of being a valuable vehicle for

investors to reap emerging market benefits.

“While the private equity industry globally

is not yet well understood, the industry in

Africa has emerged as a leading example

of how investors can realise above-average

returns while at the same time providing

much-needed capital funding to developing

nations. It allows for capitalisation of

businesses and opportunities through equity

instead of debt – providing a potentially

significant developmental impact – while at

the same time offering investors good risk-

adjusted returns.

“In recent years, we have seen a clear trend

developing as investor appetite for Africa

grew. South Africa was considered the ideal

launch zone for entry into sub-Saharan Africa.

And according to research, over the past five

years, investors are increasingly doing this

through private equity funds.”

Proxenos concurred with the findings in

Into Africa: Institutional Investor Intentions

by 2016, which notes that the focus is no

longer on commodities, grants and aid, but

rather on investment in real economic growth

drivers. And urbanisation, greater consumer

spend and the rise of a new middle class

are among the notable factors that attracted

new institutional investments while equity

funding was the preferred vehicle to reduce

investment risk.

“While the appeal and prospects of investing

in Africa are greater than ever before, few

individuals or investors have the necessary

knowledge and insight to be able to safely

and confidently make direct investments into

global markets. This is especially so in the

case of emerging markets such as in Africa,”

Proxenos added.

“However private equity investment provides

flexibility, shared exposure, some liquidity,

professional management and an opportunity

to select partners with a proven local track

record in the chosen sector. In line with the

report’s findings, and should risk factors

be contained, we expect in the next five to

10 years to see an unprecedented influx of

foreign institutional investment into South

Africa and beyond.”

ALternAtive inveStMentS

Soula Proxenos | Managing Partner of International Housing Solutions (IHS).

Super rich and Super inveStorS Committing to private equity investment in aFriCa

“In recent years, we have seen a clear trend developing as investor appetite for Africa grew. South Africa was considered the ideal launch zone for entry into sub-Saharan Africa.”

13INVESTSA

Carla de Waal | Head of Fund of Hedge Funds at Novare Investments

hedge fundS – a long-term inveStment propoSition


Instead of viewing hedge funds as

a separate asset class to long-only

equity and bond investments, these

strategies can be used as an extension

of the asset allocation process.

Different hedge fund strategies can be used

to reduce asset class risk in a portfolio,

helping it to withstand market storms. And

if capital is protected in periods of market

weakness, the portfolio will benefit from

positive compounding.

For example, equity long/short strategies

can be used in combination with long-only

equity to improve the risk profile of the total

portfolio that would lead to improved risk-

adjusted performance. Fixed income hedge

funds can be used in combination with long

bonds exposure to enhance performance in

different interest rate scenarios.

IN THE LONG RUN

Investors often underestimate the impact on

returns of the starting point of an investment.

Over the past 20 years, even with the luxury

of investing with a long-term horizon of five

years or more, there have been prolonged

periods of negative returns in the equity

market that would have had a severe

negative impact on the investment outcome.

Dividing the past 20 years into rolling five-

year periods produces a negative return

over the full five years 25 per cent of the

time in the case of global equities (MSCI

The World (net) index; January 1992 –

December 2011). However, an investment

in global funds of hedge funds (HFRI Fund

of Funds Composite Index; January 1992

– December 2011) delivered a negative

return only one per cent of the time in any

rolling five-year period.

Also, the maximum loss over any rolling

five-year period invested in the MSCI World

index is -25 per cent, in comparison to the

maximum loss by funds of hedge funds of

-3.7 per cent. So it’s clear that hedge funds

have proven their ability to preserve capital

during extended equity market downturns.

The historical performance of global funds

of hedge funds also shows that investors

enjoyed a similar return to being invested in

global equities over the past 20 years, but

with less than half of the risk, as measured

by the standard deviation.

STATE OF THE INDUSTRY

While global hedge funds had a

comparatively poor 2011, they still

outperformed equities over the past decade.

Local hedge funds, on the other hand,

performed well on both an absolute and

relative basis during 2011, beating equities

by a significant margin: the FTSE/JSE All

Share Index returned 2.6 per cent versus

the median SA single manager hedge fund

returning 8.8 per cent. Even more impressive

is the fact that, in most cases, returns were

produced at significantly less market risk

than with full exposure to equities. Net equity

exposures in the majority of local equity

long/short funds ranged between +30 and

+50 per cent throughout the year.

The vast majority of local hedge funds were

defensively positioned throughout the year

and, where positions were taken, these

were in defensive stocks, or alternatively

making use of derivative-based hedges to

reduce downside risk in a particular position.

Other hedge fund strategies, such as fixed

income arbitrage and multi-strategy, also

produced noteworthy returns for the year.

For allocators of capital, like funds of

hedge funds, these performances helped

multi-manager, multi-strategy portfolios

to continue producing solid returns at

very low levels of volatility. Assets under

management in global hedge funds have

risen past $2 trillion for the first time, and

HedgeFundResearch Inc. reports that hedge

fund launches in 2011 increased to the

highest level since 2007.

In South Africa, changes to Regulation 28 of

the Pension Funds Act are positive because

alternative investments now explicitly form

part of the asset categories that pension

funds can invest in. Hedge funds can now

comprise up to 10 per cent of a pension

fund’s portfolio, which should support

inflows into the industry.

Hedge funds should be considered during the portfolio construction phase as a useful investment tool to fine-tune asset allocation.

INVESTSA14

BLUe ink

The Blue Ink All South African Hedge

Fund Composite tracks the average

return of all single strategy local hedge

funds since the start of the first funds in

South Africa in 1999. Since those early

days, Blue Ink has been sourcing data of hedge

funds. Our first return track record of a fund starts

on 31 January 1999. Since then the number has

increased dramatically as the industry has grown.

Currently we include 95 funds in the calculation,

with the peak being 110 funds which was in early

2008.

A fund is included in the composite from the date it

becomes a public fund, i.e. open to the public for

investment. Certain fund managers run segregated

accounts or mandates for specific investors and

could therefore manage two funds with similar

mandates, returns and risk statistics. If such a

segregated account or mandate is set up with a

different name, we would include only one in the

composite. This avoids double counting of returns.

There are also numerous funds that have started

up and closed down over the years. We believe

that we have captured the vast majority of these

funds up to the date that the fund actually closed.

These funds include those that had significant draw

downs in 2008, as well as funds like Evercrest.

BLUe ink ALL SOUTH AFRICAN

HEDGE FUND COMPOSITE

“Certain fund managers run segregated accounts or mandates

for specific investors and could therefore manage two funds

with similar mandates, returns and risk statistics.”

Year 1999 2000 2001 2002 2003 2004 2005Average number of funds 1 2 4 8 18 33 48

Year 2006 2007 2008 2009 2010 2011 2012

Average number of funds 76 110 98 104 96 98 96

15INVESTSA

The vast majority of fund returns included in the composite are obtained from fund managers

directly; some historic data on closed funds were obtained from Riscura to ensure the completeness

of the fund database and to avoid survivorship bias where possible. The equally weighted average of

the monthly returns is calculated and shown as the Blue Ink All South African Hedge Fund Composite

(BIC).

The most recent performance shows that hedge funds reported an average return of 3.01 per cent

over the first quarter of 2012.

In 2008, of the 89 hedge funds in the composite, 66 funds reported positive performance over the

year, as the All Share Total Return Index declined by more than 23 per cent. This is because the

hedge fund industry comprises of a variety of investment strategies; some strategies are designed

to be lower risk while others are more risky. As a consequence of this, many hedge funds were able

to generate good returns and protect investor capital as markets declined. Hedge fund managers

typically share the portfolio and risk management skills of traditional fund managers but use

additional tools that lie outside the boundaries of the traditional fund manager’s arsenal. These

funds are not constrained by the many investment restrictions imposed by CISCA and can utilise the

full ‘toolkit’ of financial instruments to add value.

For the 12 months to March 2012, hedge funds on average reported a 10.5 percent increase in

return, outperforming the All Share Index, notably this outperform was achieved with much less

volatility. The standard deviation (volatility) on the All Share Index over the last 12 months was over

13 percent, while the same statistic for hedge was just over 2 percent.

The BIC reported a 9.10 percent increase over 2011. Notwithstanding the volatility observed in

capital markets, hedge funds managed to delivered positive real returns over a very difficult year.

Hedge funds portfolios typically are aligned with the prevailing risk-return profile of the market,

knowing that there will be many attractive periods in which to accept market risk and that these

periods have historically provided more than enough opportunity to capture strong returns with

subdued risk – the BIC shows evidence of this.

BIC ALSI ALBI STeFI

1999 48.34% 74.53% 28.63% 15.48%

2000 36.35% 0.73% 19.44% 10.77%

2001 35.29% 33.28% 17.92% 10.17%

2002 18.16% -7.67% 15.96% 11.57%

2003 23.57% 16.63% 18.07% 12.29%

2004 25.08% 25.44% 15.25% 7.98%

2005 18.92% 47.25% 10.77% 7.14%

2006 19.75% 41.23% 5.45% 7.42%

2007 15.61% 19.19% 4.25% 9.34%

2008 2.36% -23.23% 9.34% 11.70%

2009 15.92% 32.13% 5.91% 9.13%

2010 10.91% 19.69% 12.48% 7.92%

2011 9.10% 2.54% 8.82% 5.75%

2012(YTD) 3.01% 6.02% 2.35% 1.38%

BIC ALSI ALBI STeFIOne year Total return

10.55% 7.51% 13.15% 5.72%

One year Volatility 2.05% 13.01% 5.25% 0.04%Three year Total return

39.40% 78.39% 33.49% 21.81%

Three year Volatility 2.05% 15.09% 4.92% 0.33%

Best rolling 12 months since 2008 16.17% 48.30% 11.81% 11.81%

Worst rolling 12 months since 2008 1.07% -37.59% 5.72% 5.72%

A “hedge fund” is an investment strategy that can use all the tools available in modern finance to make money for investors. This is in contrast to the more traditional “buy-and-hold” strategies employed by typical equity, bond and cash managers. In general this allows hedge fund managers to be more effective at capturing returns and avoiding risks than their traditional counterparts.

A “fund of funds” (FOF) is an investment strategy that consists of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. This type of investing is often referred to as multi-management.

A fund of hedge funds (FoHFs) is a fund of funds that invests in a portfolio of different hedge funds to provide broad exposure to the hedge fund industry and to diversify the risks associated with a single strategy hedge fund.

Hedge fund investing can be more complicated than traditional investments. This is why it is generally better to access Hedge Funds via a FoHF’s. The FoHF managers have the necessary experience and tools to assess, invest and monitor these managers.

Hedge funds also typically have a high minimum investment level compared to traditional investment funds which precludes many investors from investing directly. Once again, the FoHF’s by virtue of pooling these investments provides access to a diversified portfolio of hedge funds, for advisors or their clients.

The benefit of hedge funds is that they can capture a large portion of the upside when markets perform but have the toolbox to avoid losing as much in the bad times. Thus there are an important addition to any investors overall investment strategy. The issue is that they are more complex and not as easy to access as traditional investments. As a result, FoHF’s are they ideal way for investors or advisors to allocate money to hedge funds and gain the benefits they have to offer.

FUND OF HEDGE FUNDS 101

INVESTSA16

Hedge Funds – not so scary aFter allJean Pierre Verster CFA, CA(SA), CAIA | Analyst, 36ONE Asset Management

16


While no central database of hedge fund industry

statistics exists, the South African industry is

estimated to be approximately R30 billion in size,

according to the latest Novare Investments Hedge

Fund survey. This is dwarfed by the traditional

savings and investment industry: data from the Association for

Savings and Investment South Africa (ASISA) puts the size of the long-

term insurance industry at R1.45 trillion and the unit trust industry at

R1 trillion, which is an indication of the enormous potential for the

hedge fund industry to expand.

The term ‘hedge fund’ encompasses a very broad spectrum of

investment strategies. According to the FSB’s definition, it is

described as a portfolio which uses any strategy or takes any

position which could result in the portfolio incurring losses greater

than its aggregate market value at any point in time, and which

strategies or positions include, but are not limited to, leverage or

net short positions. That might sound scary, but investors who do

their homework, ask the right questions and invest with a credible

hedge fund manager may benefit from superior risk-adjusted returns

when compared to traditional long-only investments. Important

considerations include:

- PHILOSOPHY, PROCESS AND PEOPLE

These three principles are applicable when any investment is made,

whether traditional or alternative. The investor should be comfortable

with the philosophy of the manager, i.e. what is the broad approach

towards identifying profitable investment opportunities? Be wary

of very complicated strategies and flawed philosophies. Ask the

manager to explain the investment process to you. Is the process

clear and based on comprehensive research? Are all the checks &

balances in place? You should invest money only with people whom

you trust. Check whether a reputable administrator, prime broker,

auditor and compliance officer has been appointed.

- ONLY INVEST VIA LIMITED LIABILITY STRUCTURES

Notwithstanding the expectation that hedge fund managers will manage

the inherent risk of leverage and short-selling prudently, it is advisable for

investors to invest via a structure that limits the risk to the amount invested.

- TRACK RECORDS MATTER

The seeding of emerging hedge fund managers and backing of new

entrants with little experience is best left to a fund incubator – stick to

those hedge fund managers, with a track record of at least three years,

who exhibit above-average investment skill.

- ENSURE THAT THE INCENTIVES OF THE MANAGERAND THE INVESTOR ARE ALIGNED

Most hedge funds charge a substantial performance fee, which aligns

the interest of the investor with that of the manager. It is best practice

for the high-watermark principle to be applied, meaning that the

recoupment of previous negative returns do not attract a performance

fee. Also enquire whether the manager has invested a significant portion

of their wealth into the fund as well, and insist disclosure if this situation

changes in the future.

Most hedge funds in South Africa employ the equity long/short strategy,

which is not overly complex. It is an extension of the strong stock-picking

tradition of our asset management industry, where hedge fund managers

combine a portfolio of stocks that are expected to perform well with a

portfolio of stocks that are shorted due to the expectation that they will

perform poorly. Nothing scary about that.

The alternative investment industry is poised to grow strongly in the next few years, on the back

of regulatory changes, increased awareness of the industry, nervous equity markets, as well as an

increasing number of investors searching for real returns in an environment of low interest rates.

17INVESTSA

Life industry revealed to be in robust shape

The South African life insurance industry held record assets of R1.45 trillion at the end of 2011, an increase of 13 per cent from the R1.28 trillion held at the end of 2010.

Releasing the 2011 sales statistics for the South African long-term insurance industry, Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA), said long-term insurance industry assets continued to exceed liabilities by more than triple the legal reserve buffer required in 2011, despite the impact of the global financial crisis, extreme market volatility and the economic hardships felt by South African consumers.

Dempsey said that the 2011 long-term insurance industry statistics are the most representative ever, with the majority of non-traditional life licence holders (life companies that do not provide risk benefits) having submitted their figures for inclusion. Until 2010, sales statistics for the long-term insurance industry were based only on data received from life companies that were previously members of the Life Offices’ Association (LOA).

Life insurers also experienced a surge in demand for life insurance products in 2011. Dempsey reported that the industry attracted R82 billion in new individual premiums last year, compared to R66 billion in 2010. In addition to taking out new policies, policyholders maintained and increased recurring premiums for individual in-force policies. Recurring premium retirement annuities (RA) proved most popular last year. According to Dempsey, consumers committed new monthly premiums worth R1.5 billion to RAs, compared to R1.1 billion in 2010 – a 31 per cent increase.

He added that surprisingly, new lump sum investments into RAs dropped sharply by 33 per cent from R7.5 billion in 2010 down to R5 billion in 2011. “It would appear that consumer confidence in RAs requiring monthly premiums has returned since the industry implemented a number of significant reforms aimed at providing RA fund members with greater value. In 2011, we noticed a strong shift away from single premium RA fund policies towards recurring premium RAs.”

gavin came | Chairman of the Financial Planning Committee at the Financial Intermediaries Association of Southern Africa

peter Dempsey | Deputy CEO of the Association for Savings and Investment South Africa

inDUStrY ASSociAtionS

Be aware of bogus investment opportunities

With tough economic times facing most South Africans, many are trying to find an affordable investment product that will guarantee them a high return; but if they haven’t done their homework, they could be heading for financial ruin by falling prey to a bogus investment opportunity.

According to Gavin Came, chairman of the Financial Planning Committee at the Financial Intermediaries Association of Southern Africa (FIA), there are so many bogus investment schemes being advertised that new cases emerge each week. “It’s vital to conduct thorough background checks before considering investing any amount of money. Remember too that institutional risk (the risk that the business you are investing in will fail) is somewhat limited if you stick to businesses that are authorised by the Financial Services Board (FSB) or the Reserve Bank. Some investors have fallen victim to investment scams advertised in newspapers thinking the opportunity must be real since it has appeared in a respectable newspaper.”

He says there are a number of ways to spot a bogus investment opportunity. “Usually any product offering an out of the ordinary return should be looked at carefully. For example, any product offering a guaranteed return, especially if it is above about six per cent, should trigger an alarm bell as a yield higher than this normally requires some risk or some form of lock in of your funds.

“A good way to find out more information about an investment product is to research the company and product on the Internet, such as: the ownership structure; whether it is listed on the JSE; the length of time in business; track history and size of portfolio(s); people in management, etc. Next, look for valid contact details and see if you can set up a meeting to discuss the product and company history,” said Came.

“It’s vital to conduct thorough background checks before considering investing any amount of money.

INVESTSA18

1. Are alternative investments more

appropriate for institutional rather than

retail investors?

Certainly not. Alternatives, if implemented

correctly, provide a diversifying element to

any portfolio. Thus they are a useful addition

to the overall investment strategy. Throughout

the years alternatives have attracted money

from individual investors, endowments and

pension funds. Investors will remain interested

and keen on strategies that offer alpha-

generation on a consistent basis.

2. How should investors incorporate

these product sets into their portfolios?

The main benefit of alternatives is portfolio

diversification The key to incorporating

alternative investments is with due

consideration to the other assets and their

weights in the overall investment portfolio.

Depending on the existing asset mix,

different alternative strategies may have a

risk-reducing or risk-enhancing effect. The

key is to be able to model the addition of the

alternative portion to the portfolio and assess

its benefits to the client’s overall investment

strategy and objectives.

3. Have you seen an increase in appetite

for alternative investments with the

promulgation of regulation 28?

There has certainly been an increase in

the number of pension funds allocating to

alternatives and an even greater increase in

the number of pension funds wanting to

allocate to alternatives. That said, the South

African market was skewed in that, until

recently only a few large pension funds had

allocated to alternatives. They were generally

fully allocated or overweight and have had

to right-size their investments. The net result

of large funds adjusting allocations and

smaller funds allocating new monies has

been neutral to the industry as a whole.

4. Do you think current limits set by

regulation 28 are sufficient, or should

these be higher?

It is certainly a move in the right direction.

The broader question is really around

pension fund regulation in general. Should

you regulate specific levels of investment in

any asset a la the Prudent Man Rule;

or should you move towards the Prudent

Investor Rule where the focus is on the

portfolio level outcome and not the specifics

of any one asset or investment. Among the

principles highlighted in Regulation 28 is

that a pension fund and its board have a

fiduciary duty to act in the best interest of its

members, including adopting a responsible

investment approach that will lead to

adequate risk-adjusted returns to meet the

fund’s specific needs.

That said, in the environment post-

2008, where the global tendency has

been towards over regulation, this is a

good compromise.

5. What role do you think an adviser

should play in recommending these

investments?

The role of any intermediary or consultant

is important. They are the gatekeepers to

the client’s portfolio. They must, with the

help of the right tools, assess the most

appropriate alternative strategies to add to

the portfolio and, almost more importantly,

in what proportion to add them.

6. What role do alternative investments

such as private equity or hedge funds

play in the wider financial markets?

There have been many academic papers

written on this subject. There are also

many myths that abound as to the role

and impact of alternatives on financial

markets. The general consensus is that

they add liquidity and price discovery to

the markets in which they operate and

thus assist with the efficient functioning of

markets as a whole. As for the perception

that alternative managers are predatory,

all investment managers seek maximum

profit for their clients. Furthermore,

markets cannot be forced to go where the

underlying fundamentals were not taking

them already. The provision of liquidity can

only speed up what was inevitable. More

often than not, alternative funds, by virtue

of short positions, are providers of liquidity,

i.e. buyers at times of financial stress, not

contributors to the problem. They are,

however, easy scapegoats.

HeAD to HeAD | BLUe ink

Chief Investment Officer, Blue Ink

S T J O H N B U n g e Y

BLUE INK

19INVESTSA

HeAD to HeAD | SYgniA ASSet MAnAgeMent

1. Are alternative investments more

appropriate for institutional rather than

retail investors?

Alternative investments, by their nature,

tend to be more complex than conventional

investment portfolios. Hedge fund managers

have broader mandates than managers of

conventional portfolios. These mandates

allow them to use instruments that might

not be familiar to many retail investors,

and which allow them to use leverage in

their portfolios and to take short positions

in stocks. The wider mandates adopted

by hedge funds allow good hedge fund

managers to deliver very attractive returns to

their investors and at the same time manage

the risk of losing investors’ capital, but they

could also result in much higher risk if not

employed prudently.

Given the complexity of many hedge funds,

and bearing in mind the potential for

higher risk, if you follow the sage advice

of not investing in anything that you do not

understand, few retail investors are likely to

have the investment knowledge to be able to

select suitable hedge funds with any degree

of confidence. At the same time, many IFAs

will not have the skills and experience to

assist them.

Institutional investors tend to have the

advantage of having access to highly

qualified advisers who take them through

a process of developing well-diversified

investment strategies where the role of

alternative investments can be properly

understood and suitable funds can be

selected. Ironically, the global hedge fund

industry grew because high net worth

individuals were attracted to the return

profiles that many hedge funds were able

to deliver.

2. How should investors incorporate

these product sets into their portfolios?

Investors need to determine what proportion

of their portfolio they want to allocate to

alternative investments and how they want

to access them. The proportion allocated

to alternatives will be a function of the

risk and return objectives of the portfolio,

their liquidity requirements, the investors’

familiarity with hedge funds or private equity

funds, their access to suitable advice and the

regulatory constraints that they must operate

within. Access can be direct or through

a fund of funds vehicle such as a fund of

hedge funds, where access is provided to a

well-diversified portfolio of hedge funds that

are chosen and blended together by hedge

fund specialists.

3. Have you seen an increase in appetite

for alternative investments with the

promulgation of regulation 28?

To be honest, not really. There are a lot

of changes that have come with the new

regulation and most funds appear to be

dealing with the process changes first before

revisiting their investment strategies.

4. Do you think current limits set by

regulation 28 are sufficient, or should

these be higher?

As a proponent of the benefits that hedge

funds can bring to retirement funds’

investment strategies, I would naturally have

liked to have seen slightly higher limits,

say 15 or 20 per cent. However, when you

consider that this is the first time that the

regulators have included a specific allocation

to alternative investments, I think the industry

and investors can be pleased with the 10 per

cent maximum allocation to hedge funds. In

time this may be revised upwards.

5. What role do you think an adviser

should play in recommending these

investments?

The adviser is key to the process. The adviser

should have a good understanding of the

benefits that alternative investments can

add to investment portfolios, as well as the

potential pitfalls. They can then advise on

suitable allocations and the most appropriate

way to access alternative investments, where

these are appropriate for the investor.

6. What role do alternative investments

such as private equity or hedge funds

play in the wider financial markets?

Both private equity managers and hedge

fund managers tend to see markets

differently from conventional managers.

Private equity managers tend to have a long-

term view and hedge fund managers have

perhaps a short-term view and they tend

to be more active in the markets. Hedge

fund managers also take short positions in

instruments that they consider overpriced.

Hedge fund managers often manage smaller

portfolios and can benefit from analysing

instruments that managers of larger

portfolios have little to gain from spending

time looking at. Having market participants

with different investment time horizons and

different perspectives adds greater depth to

investment markets and makes markets more

efficient for all investors.

Head: Investments, Sygnia Asset Management

S I M O N p e i L e

SYGNIA ASSET MANAGEMENT

INVESTSA20

SHAUn HArriSSHAUn HArriS

lots oF value in the mining seCtors

“Investors might opt for

resources unit trust funds

or exchange traded funds.

Better returns, though, will be achieved

through the careful selection of

mining shares”

BUT THE HARD PART IS MINING IT OUT

While it has technically

been in decline for the

past few years, mining

remains at the heart

of the South African

economy. The mining industry is a large

employer and, when times are good, a large

contributor to both GDP and the national

tax base. Mining and resources stocks also

dominate the JSE, making up nearly half of

the market capitalisation of the JSE All Share

Index.

Like it or not, most investors will have

exposure to mining shares. Just about every

general equity unit trust fund or tracker

fund will include the mining large cap

companies like Anglo American and BHP

Billiton. Resources should be part of a well-

constructed, long-term investment portfolio.

But the shares do carry higher risk and more

volatility than other sectors on the JSE. The

mining sector is currently offering great

value to investors. But the daunting task for

financial advisers is, first, deciding how much

exposure should be to mining, and secondly

which shares should be included in clients’

portfolios.

The choice of mining shares is large and

diverse, with mining taking up six sectors

on the JSE. These are industrial metals and

mining; coal; diamonds and gemstones;

general mining; gold mining; and platinum

and precious metals. Companies in each

sector are affected by issues specific to

the industry in which they operate. That’s

why advising clients on choosing mining

shares is a tough task for financial advisers.

Conditions in one mining industry are very

different to another. However, when investors

think mining shares, they will often think of

one sector – gold mining.

“Physical gold is, surprisingly, more risky

as an investment than shares in gold

mines,” said Takura Mahwehwe, a portfolio

construction analyst at Cannon Asset

Managers. “The volatility of the gold price

since 1971, when the gold standard was

abandoned and the gold market liberalised,

is 28.7 per cent, compared to 18.2 per

cent for global equities. Another concern

as far as risk is concerned is the shape of

BY SHAUn HArriS

21INVESTSA

returns: gradual, more consistent returns are

delivered by equities as opposed to gold.”

There’s no doubt that gold mining shares are

offering value to investors. Big companies

like Anglo American and BHP Billiton sit on

price-to-earnings ratios around eight times.

That’s cheap and may not get any cheaper.

But there’s a good reason for it. Anglo’s

share price has lost around 18 per cent in

the past year and BHP Billiton about 15 per

cent. Yet value and risk differs a lot between

the gold mining shares.

Take Anglo American as an example of

the value versus risk spectrum. Apart from

its low stock market rating, Anglo has

upcoming events that should add even

more value to the share. Its deal to buy out

the Oppenheimer’s family stake in major

diamond producer De Beers has been

cleared by the Competition Tribunal. All

that remains is to get approval for diamond

licenses and mining and prospecting rights

for De Beers in South Africa. That should be

no more than a formality.

So there’s a nice kicker for investors. But

the downside is that mining production fell

by 14.5 per cent in February compared to

the previous year. Production is what it’s all

about, and South African mining production

is at its lowest level in 51 years. In addition

Anglo, which has large mining interests

in Zimbabwe, runs the risk (along with a

number of other mining houses) of losing 51

per cent of its interests in the country under

its proposed empowerment laws.

Anglo also faces a British high court hearing

next month where former miners will claim

benefits from the company for contracting

the lung disease silicosis while working on its

mines. Anglo is defending the court action

on the basis that it did not have a majority

stake in the mines where the workers were

affected.

That’s the choice facing investors and

financial advisers. A major mining house

that is attractively priced on the JSE, Anglo

also offers investors fairly wide exposure

to different mining industries and various

countries around the world. But it comes

with declining production numbers and

the volatility of the gold price. And there

are the other risks it faces in Zimbabwe

and the British high court. Overall there is

still value in Anglo American and investors

looking for mining shares should consider

buying. It could form the core part of the

mining section of an investment portfolio, to

which the investor could add shares more

specifically focused on particular mining

industries, like gold, platinum and coal.

Much the same is true about BHP Billiton.

Steve Meintjes, head of research at Imara,

said that a view on Anglo and BHP Billiton

is really a call on commodity demand.

“Demand is closely tied to China and

whether it’s going to have a hard or soft

landing. We have a buy recommendation on

both shares.” One way of trying to determine

value amongst mining shares is to look at

expected returns. Over the long term, a

large percentage of the return will come

from dividend payments.

Looking at coal mining, there are a few

struggling operations in the sector. Only one

company, Exxaro, is on a dividend yield, a

not too bad 3.8 per cent. Meintjes points out

that Exxaro is no longer only a coal mining

company but presents itself as a diversified

miner. Other coal companies showing

promise include Coal of Africa, Forbes and

Petmin; the latter also classified as a general

mining company. “There seems to be huge,

pent-up demand for coal, in South Africa

and neighbouring states,” Meintjes said.

Demand will ultimately lift the price of coal,

which some of the companies say hardly

make coal exports worthwhile.

Other mining shares on decent dividend

yields include Kumba (8.5 per cent); contrary

to most other mining houses, it recently put

out a quarterly report showing an increase

in production. Palamin, which mainly mines

copper, is on a dividend yield of 7.4 per cent

and Metmar, which trades bulk commodities,

has a dividend yield of 4.2 per cent.

These are the shares worth watching. Some

may be struggling now but they offer value.

But which companies should investors avoid?

Impala Platinum, the second-largest

producer of platinum in the world, is

one. Without making a judgement call on

management, the way it handled the long

strike by workers at its Rustenburg operations

was appalling. The strike was also one of

the main reasons for a 14.5 per cent drop

in mining production. The share price, up

around 50 per cent over the past year, has

been one of the best performers in all the

mining sectors. But the sharp increase in

the share price also suggests the counter is

overvalued.

Another is Randgold Resources. Management

seems very good, with CEO Mark Bristow

successfully securing a new mining contract

shortly before the coup in Mali. But its

exposure to Mali highlights its weakness.

About two-thirds of Randgold’s mining

production is in Mali. Investors should keep

away because the political risk attached to

the share just looks too great.

Investors might opt for resources unit trust

funds or exchange traded funds. Better

returns, though, will be achieved through

the careful selection of mining shares. That’s

not an easy decision, but that’s what a good

financial adviser is for.

“The mining sector is

currently offering great value to investors. But the daunting

task for financial advisers is, first,

deciding how much exposure

should be to mining, and

secondly which shares should

be included in clients’

portfolios.”

INVESTSA22

Holding on to mining as an investment

Peter Major, Mining Consultant, Cadiz Corporate Solutions

Sector report

South Africa has been world famous for high quality, high return mining investments since diamonds were first discovered here back in 1870. So it's no wonder that the Mining and Resource Index (the RESI 10) of the JSE's All Share and ALSI 40 Indices is usually close to 50 per cent of total market cap. But what is surprising is that recently the RESI 10 has fallen to barely 40 per cent ($208 billion) of the ALSI 40's market cap of $506 billion. And now the Financial Industrial Index is 60 per cent of the ALSI 40's market cap.

This begs the following questions:

* Why is the RESI 10 trading 35 per cent lower than in June 2008 when its earnings are now 35 per cent higher than then?

* Why is the RESI 10's EY (12 per cent) & DY (three per cent) currently at their second highest/cheapest of the past 20 years?

* Why is the PE ratio of the RESI 10 – relative to the Fin/Ind Index – now at a +30-year low of 0.5 (average is 1.05)?

* Why is the RESI 10 Index now at a 13 year-low price relative to the Findi 30, despite current high commodity prices?

23INVESTSA

The market isn't the only one worried about this 10-year bull run in commodity prices coming to an abrupt and inglorious end soon. I am worried about it, too. But the current ratings of most mining companies, especially the large diversifieds, are just too far out of line with everything else for my reasoning. And I can't remember –when last the commodity prices outperformed the actual mining companies’ equity prices as we've seen the past few years. Whether it's gold shares vs. the gold price, or platinum shares vs. the platinum price, the dichotomy just seems too extreme to me.

Unless the world has truly changed into something that I can't understand, then I believe the RESI 10, and particularly the large diversifieds – Anglo, Billiton and even Glencore – are too valuable relative to everything else to not make up the largest chunk of a conservative portfolio, even if commodity prices drift down from now. That is relative to everything else including cash.

If we believe that with all the quantitative easing, money printing and low interest rates of the past five years, that we'll continue this way for another two; then it is probably a good idea to hold a couple of large cap platinum and gold shares, too. Harmony, Goldfields, Lonplats and Impala all look attractive to me at present. And while there are smaller listed precious metal equities in SA with even better upside potential (such as Eastplats, Aquarius and a few others), these large cap shares at their current depressed prices offer nearly as good upward gearing, but with much better liquidity, diversification and less risk.

The sole reason for the RESI's huge underperformance this year? Sentiment; not earnings. Sentiment!

The market generally looks forward between 12 – 18 months. So today the market seems to believe that the magnificent commodity run of the past 10 years has ended. Right or wrong, the market believes that most commodity prices are going to be significantly lower in 12 – 18 months' time than they are now. This could very well be true – I tend to believe this as well.

However, that was the general thought in late 2007 and again in 2009 and yet both times we were wrong (on the commodity price side) and the RESI gained nearly 50 per cent in each year. The market thought commodities were too high in 2005, yet commodities held up and the RESI gained 70 per cent. And who can forget the RESI's 140 per cent gain in 1999 when most metal and coal prices hardly moved? And ditto the RESI's 100 per cent gain in 2001 with almost no increase in commodity prices.

Now almost no-one I know is probably more wary of current commodity prices than I am, especially the precious metal and oil prices. Gold's average real price of the past 50 years is $640 an ounce. And here it is trading at $1 650. Silver prices are currently two-and-a-half times their long term Real average. Even platinum’s40-year average real price of $910 an ounce makes the recent $1 540 an ounce look scary. Oil at $125 bbl looks too high compared to its 40-year real average of $46 bbl. As do diamonds, copper and iron ore – all trading at nearly double their long-term real average prices.

“Gold's average real price of the past 50 years is $640 an ounce. And here it is trading at $1 650.”

INVESTSA24

Mining & reSoUrceS Sector: top coMpAnieS

company information

Share price: R89.00 | Market capitalisation: R11.0bn as at 26/04/12 | Share code: AFE | Financial year end: December

company business overview

AECI Limited is a listed South African company. It has a number of

business units including:

• AEL Mining Services, which develops, manufactures and markets

explosives, initiating systems and blasting services for the mining

and construction markets. The division has established offices and

other manufacturing facilities in Africa, Latin America and South

East Asia.

• The Specialty Chemicals cluster, which consists of a number of

specialty chemicals manufacturers and marketers, with business

units located throughout Southern Africa, as well as a joint

venture in Brazil. It is actively pursuing further opportunities in this

geography.

• SANS Technical Fibers, located in the USA, which is a manufacturer

of industrial nylon yarns.

• Heartland, a company that is in the process of realising (converting

into cash) surplus land and property assets of AECI. AECI continues

to investigate new business models and alternative approaches to

realising value from its property holdings.

Dividend yield 2.9%

Turnover growth 15.8% (FY11)

Profit growth 30.1% (FY11)

1 year 3 year 5 year

Share price performance 3.2% 85.4% 11.3%

Source: AECI Integrated Report 2011

company outlook

AECI’s results at the end of the financial year ended December 2011

showed an increase in revenue of 16 per cent. Overall profit from

operations was up 24 per cent to R1 315 million, driven by a weaker

Rand and a marginal improvement in manufacturing volumes, while

mining product volumes were flat. The main contributors to operating

profit were mining services and chemicals, almost two-thirds and

one-third respectively. The positive environment also allowed AECI to

improve its operating margin to 9.8 per cent.

AECI has significant property holdings but due to a broad lack of

credit availability, only six sales transactions were concluded during

the period. Outlook for its property business for the current year

remains muted with limited interest in its industrial properties. The

major activity continues to be preparing land for release when

market conditions improve. There is potentially significant value to be

unlocked from this holding, by selling the developed or undeveloped

land. The land has been held by AECI for many decades and was

originally acquired for industrial purposes.

AECI is well positioned for an increase in manufacturing and mining

volumes, with major expansion projects completed. The balance sheet

is strong with gearing reduced to 36 per cent compared to 78 per

cent three years ago. Management’s focus for this financial year is on

expansions in selected areas outside South Africa as well as on costs

and integration of recent specialty chemicals acquisitions.

25INVESTSA

AECI, the specialty chemicals and explosives leader, is seeking more growth in key emerging economies around the world, particularly South America, Africa and Asia Pacific. To implement the strategy, a new Group structure has been developed over the past two years and executive resources have been regionally focused. Together with the experience that comes from managing successful businesses in faraway places, like Brazil, Indonesia and many African countries, the Company is clearly going the distance to grow shareholder value in the future.

Our growth plan goes the distance.

www.aeci.co.za

Brazil 22º54’S 43º11’W

Indonesia6º12’S 106º48’E

China 39º54’N 116º23’E

Across Africa26º12’S 28º2’E

AECI > Advert - InvestSA 210x297.indd 1 2012/04/25 3:59 PM

INVESTSA26

In a recent article by Fortune magazine, Berkshire Hathaway’s Warren Buffett upheld his professional dislike for gold saying that it will not pay interest or dividends, and it will not respond if you try to “fondle it”.

This said, there has certainly been high demand for gold since the financial crisis of 2007. The price of gold grew at an astounding rate of 173.1 per cent in US$ terms since the end of 2006 to January this year, hitting its ceiling of $1 785 at the end of February. What has been the real reason for this growth?

Gold has traditionally been the safe haven in times of market uncertainty as a means of risk aversion. The low global interest rate environment of late, combined with the odds stacked against a rise in inflation for the next few years have made gold a very attractive asset.

Some gold-bears, however, argue that the introduction of gold exchange traded funds (ETF) in 2006 inflated the price of gold artificially by lowering the entry barriers. As the share price increases, ETFs are forced to accumulate more physical gold bullion and this, in turn, puts upward pressure on gold spot prices. Contrary to this theory, actual evidence from the World Gold Council indicates that ETFs only account for eight per cent of global gold demand, with jewellery demand in first place at 50 per cent and coin demand coming in at about 25 per cent.

So who are the real gold investors? Conventionally the demand for gold came from developed market investors or central banks. Purchasing gold is an alternative to reserves in hard currencies and to hedge against inflation. Once again data suggests that developed markets are not the largest buyers of gold. Retail purchases by consumers in developing markets such as China and India lead the buying power; as a matter of fact, their combined demand amounts to more than that of the entire developed world. This begs the question: why are the average consumers in these countries interested in gold?

Since trade liberalisation and the commodity boom have enabled emerging markets to prosper, their financial systems have not kept up

with the pace of modernisation. This, combined with their tendency to save rather than spend money, has led to a large build-up of savings. These savers could invest abroad but the strict capital controls in these countries meant that investing abroad directly was not easy. Other options such as investing in their domestic stock markets seemed unpopular since these markets often prove too volatile (especially in China) and domestic savings accounts are disliked because of negative real interest rates. They could invest in hard assets, such as property, but these prices seemed to have peaked and are getting ready for a hard landing. This leaves gold as an obvious alternative.

The combined gross savings in China and India increased from $557 billion in 2000 to $3.4 trillion in 2010. Even now while these economies have started to show signs of slower economic growth, the average investor continued to invest more in gold with their savings.

At this point in time, there is still a lot of scope for short-term volatility in the price of gold, since all of Europe’s debt problems are not solved yet. Nevertheless, since capital controls are likely to get tighter in the short term, prospects for gold are excellent.

Another well-known asset manager, George Soros, once said, “Gold is the ultimate bubble.” He also said, “Nothing is quite as profitable as investing in an early stage bubble.”

hookeD on

econoMic coMMentArY

Merina Willemse | Economist at Efficient Group Ltd

“At this point in time, there is still a lot of scope

for short-term volatility in the price of gold, since

all of Europe’s debt problems are not solved yet.

Nevertheless, since capital controls are likely to

get tighter in the short term, prospects for gold

are excellent.”

27INVESTSA

cHriS HArt

chris Hart | Chief strategist | Investment Solutions

Brazil EssEntials

Brazil has been in the spotlight as it has overtaken the UK to become the sixth-biggest economy behind the US, China, Japan, Germany and France. As

part of BRICs, Brazil has three key natural economic advantages -- size, population and natural resources.

Despite its increasing importance globally, it is not an easy country with which to do business. The World Bank Ease of Doing Business ranking places Brazil at 126, behind China at 91 and Russia at 120, but ahead of India at 132. South Africa is placed well ahead of the larger BRICs countries at 35.

There are many similarities with SA and also important differences. The education systems are similar in that government-provided primary and secondary education is quite dreadful. The consequence is Brazil also suffers from an acute skills shortage. A glaring difference is that Brazil has close to full employment, while SA has a high level of unemployment.

Brazil is politically complex, with a federal structure of 27 states. The regulatory structure is also complex and onerous, as is the tax burden. Regulatory complexity comes with considerable government intrusion into the economy. Labour laws are strict; but while workforces are highly unionised, the union movement is quite fragmented. The consequence is that the costs of compliance with labour laws are very high, but labour unrest is not regarded as a problem or a threat.

But regulation does not only come with a stick for business. There are incentives. The Brazilian Government engages its business sector and there is an atmosphere of co-operation. The overall regulatory structure is a mixture of carrots and sticks. The Brazilian economy was greatly damaged by hyperinflation that was tamed in only 1994 and much of the past decade’s growth has been the re-establishment of the middle class. The corporate sector has also been recovering from the loss of value and balance sheet damage. Infrastructure constraints are its biggest challenge. These include road, rail, air and telecommunications.

In many ways, the SA economy is far more competitive than Brazil’s because it is much more open. There are similar challenges such as a low skills level, but the regulatory burden is not as Byzantine and SA’s infrastructure is in far better shape and less congested. The key difference is that Brazil has a strong job-creating mechanism in a vibrant small business sector, which is not the case in SA. A far higher level of employment can be achieved in the face of infrastructure constraints, skills shortages and harsh labour laws but there

has to be support for small business and entrepreneurship.

A common feature of the BRICs is that, other than SA, they are difficult places in which to do business. They have numerous competitive disadvantages, but size, population and availability of resources appear sufficient to allow inward investment to generate growth that can overcome these obstacles. They also have governments that collaborate with their business communities, which is a key deficiency in SA, where there is a lack of consultation and the relationship is quite adversarial.

The Brazilian economy has beaten its unemployment challenge through entrepreneurship and small business. The income gap, skills shortages, lack of competitiveness, low savings rates, infrastructure constraints and costs are all issues that face SA, but in many instances it is in a better or stronger position. The relationship between government and business needs to change and the environment for small business improved so that job creation can become more robust. A few tweaks and the potential of SA can be unlocked.

“The Brazilian economy was greatly damaged by hyperinflation that was tamed in only 1994 and much of the past decade’s growth has been the re-establishment of the middle class.”

There are similar challenges such as a low skills level, but the regulatory burden is not as Byzantine and SA’s infrastructure is in far better shape and less congested.

INVESTSA28

29INVESTSA

INVESTSA30

Singapore is a special place for me. This small city with few natural resources has managed to overcome obstacles to achieve a high degree of economic success. This year is special

as it marks the 20th anniversary since we opened Franklin Templeton’s Singapore office. To celebrate this milestone, we chose Singapore to host this year’s first semi-annual EM Analyst conference.

To share the Singapore perspective, I asked Dennis Lim, Co-CEO of Templeton Asset Management Ltd and one of the pioneers who started the Singapore office with me 20 years ago, to be my guest blogger to share his insights and analysis on the changes and challenges in Singapore and across Southeast Asia.

Dennis LimOur analyst conferences are high-energy events and this one was no exception. We had more than 50 analysts from our offices around the globe gathered in a single meeting room, sharing opinions on companies and discussing global events. Watching them debate investment ideas and discuss trends from the different markets and sectors made me realise just how large our EM team has grown from the days when Mark started the group. Analyst meetings used to be very regular affairs. The original

team of Mark, Tom Wu, Allan Lam and I used to travel together quite frequently so we were talking on a daily basis.

It’s been two decades since we opened the Singapore office. I have seen the city survive many setbacks; growing, maturing and reinventing itself and developing into the economic hub it is today. Since its early beginnings, Singapore’s history combined the rise and fall of the Malay empires, the exchange of European colonial powers and the highs and lows of nation-building.

The city sits at the southern tip of the Malay Peninsula, and acts as a gateway into Southeast Asia. The city hasn’t forgotten its early roots as an entrepôt, where international traders buy, sell and barter goods and services. It has developed into a centre for construction and financial services as well as for trading manufactured goods. Today, government and business leaders aspire to further develop the city into a global seat for gold and carbon trading as well.

Singapore also has one of the more well-established capital markets in the Asia-Pacific. The Singapore Exchange is the preferred listing location for close to 800 global companies1

and, since some frontier market companies are listed there, it is a conduit through which we can access companies in those markets. Adding

to this, some Singapore-listed companies offer opportunities for us to access budding new markets like Vietnam and Cambodia.

Investing in Singapore, though, comes with its own set of challenges. Its domestic market is small and the economy is a very open one as it doesn’t restrict trade, development and capital flows with other countries. This means that Singapore is more closely linked to the movements of the global markets and affected by global market volatility like the global financial crisis and the challenges from the Eurozone.

Looking beyond Singapore, the Southeast Asian nation of Indonesia is one of the countries forced to endure past challenges such as the Asian financial crisis, SARS outbreak and ripple effects of the 2011 tsunami in Japan. Despite these challenges, Indonesia rebounded each time. I do think that more needs to be done in this country where street protests are rampant, but the progress the country has made in the past 20 years is nothing short of remarkable.

With access to natural resources such as timber and coal, Indonesia has the potential to benefit from increasing global demand for commodities, mainly due to rising infrastructure development in many emerging markets which see a continued demand for hard commodities.

gateway to soutHeast asia

singapore

frAnkLin teMpLeton inveStMentS

BY MArk MoBiUS

31INVESTSA

Mark Mobius, PhD.

Executive Chairman

Templeton Emerging Markets Group

Mark Mobius, PhD., executive chairman of Templeton Emerging Marketing Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 17 global emerging markets offices and manages emerging markets portfolios.

After more than 30 years in global emerging markets, Dr Mobius has received numerous industry awards, including Emerging Markets Equity Manager of the Year 2001 by International Money Marketing, Ten Top Money Managers of the 20th Century in a 1999 Carson Group survey. In 2006, Asiamoney magazine listed Mobius as one of the Top 100 Most Powerful and Influential People. The World Bank and Organisation for Economic Co-operation and Development appointed Dr Mobius joint chairman of the Global Corporate Governance Forum Investor Responsibility Taskforce.

Dr Mobius earned bachelors and masters degrees from Boston University, and a PhD. in economics and political science from the Massachusetts Institute of Technology.

1 Monetary Authority of Singapore, February 22, 2011.2 World Economic Outlook Update, January 24, 2012.3 World Bank, “Global Economic Prospects: Uncertainties and Vulnerabilities” January 2012.

To see this article and to keep up-to-date with future blogs from Mark Mobius, please visit ttp://mobius.blog.franklintempleton.com/

1 Performance data may represent blended share class performance, e.g. hybrid created from an A(dis) share class which was converted to A(acc). Performance figures above are for A(dis) shares, except

where only A(acc) shares are available, then A(acc) performance is shown.

When the 1997–1998 Asian financial crisis struck, the Indonesian Government responded by taking control of a portion of private sector assets through the acquisition of non-performing loans, and executed a debt restructuring process. The results are a more transparent and open economy, and improved corporate governance in Indonesia.

Like Indonesia, Thailand has faced its share of economic challenges and political instability. Thailand was dealt an additional blow last year in the form of the worst flooding in decades. Despite these, we consider Thailand’s long-term fundamentals to be positive and the economic recovery to be sound. Drivers for Thailand’s economic growth include the country’s agricultural resources – including offshore gas reserves – and a successful tourism industry. For value investors like us, current valuations in Thailand generally remain attractive, though the potential growth obstacles do bear ongoing scrutiny.

We also see potential opportunities for growth in the frontier markets in Southeast Asia.

Myanmar, for example, is rich in oil, gas and all sorts of minerals. Such resources are positive, of course, but the country is not without its areas of concern. Weaknesses we’re especially mindful of in Myanmar are lack of a proper legal structure, the lack of a well-developed banking system, and the lack of solid foreign exchange operations.

Cambodia, being ideally located to take advantage of cross-trade opportunities with Thailand, Vietnam and Laos, presents other interesting Southeast Asian frontier market investment possibilities. And, of course Cambodia’s tourism industry has been strong in recent years. It isn’t all positive, though, and in Cambodia I would caution potential investors to monitor corporate governance standards to ensure investors are treated fairly.

Bottom line: the numbers for Southeast Asia are hard to argue with. The latest estimates from the International Monetary Fund project developed economies as a whole to achieve GDP growth of only 1.2 per cent in 2012 and 1.9 per cent in 2013.2 In contrast, Southeast Asia as a whole

is expected to post an estimated GDP growth of 5.8 per cent this year and 7.1 per cent in 2013.3 Of course, we don’t pick individual companies based on large-scale trends; a key component of our investment approach has always been to pick investments based on their individual merits, and to seek undervalued companies we believe to be well-capitalised with a unique and competitive product range. We consider companies that are paying solid and sustainable dividends to be especially attractive.

Viewing the region from the now 20-year-old seat of our Singapore office, what we see in Southeast Asia is a generally favourable combination of rising per-capita incomes and a relatively young population, a recipe with the potential to fuel the appetite for a wide variety of consumer goods. The challenges Southeast Asian markets face must not be easily dismissed, but overall I am optimistic about the region’s long-term growth potential.

Here’s to the next 20 years.

singapore

ABoUt MArk MoBiUS

cUMULAtive AnD AnnUALiSeD (*) perforMAnce % (DiviDenDS re-inveSteD)1

YTD One year Three year

*Three year

Five year *Five year

Templeton Asian Growth A(acc) USD 15.59 3.3 179 40.77 69.92 11.18

MSCI All Country Asia ex Japan Index 17.45 2.28 127.86 31.58 37 6.5

Templeton Latin America A(acc) USD 17.08 -4.17 129.7 31.93 50.56 8.53

MSCI EM Latin America Index 18.44 -1.72 137.59 33.43 66.58 10.74

JSE/ACT ALL SHARES SI 40 Index Performance (USD) 9.62 -10.05 98.38 25.65 13.88 2.63

INVESTSA32

ASSet MAnAgeMent

gloBal equities in turmoil? wHat tHe Headlines don’t tell youReading through business newspapers is

not for the faint hearted. On any given day, one is likely to find disturbingly

pessimistic headlines warning investors of major impending losses and predicting

even more gloom to come. However, asset managers, while wary of the current

volatile environment seem to have a much rosier outlook.

In a recent article penned by Matthew de Wet, head of investments at Nedgroup Investments, he refers to a headline he spotted in the daily newspaper: Global equities sink as uncertainty in Italy inflames fears – a dramatic enough headline to worry even the most infallible investor.

De Wet then explains that the content of the article describes how “the Dow Jones Industrial average dipped by 0.27% in mid-morning trading” and that the “Top 40 Index finished 2.19% higher”. Hardly newsworthy and hardly negative, but only careful reading exposes this.

“There are many reasons to be negative about the state of the global economy, so it’s no wonder at the amount of negative headlines. Investors from the developed markets, particularly Europe where the news is the worst, have all but abandoned equities in favour of perceived lower risk asset classes such as cash and government bonds,” added De Wet.

* Calculations made using returns of 11.5% per annum | Foord Unit Trusts Limited is an authorised Financial Services Provider

021 531 5085 | [email protected] | www.foord.co.za

Save a � xed monthly amount for 10 years then allow the capital to compound for a further 30 years. The strategy produces twice the accumulated savings compared to saving monthly for 30 years*. Ten years appears to do the work of 30. But it is the 10 years’ saving compounded for 30 years that creates the result.

GIVE YOUR INVESTMENTS TIME. BE PATIENT WITH THEM.

TIME IS ONE OF THE MOST IMPORTANT ELEMENTS IN THE COMPOUNDING FORMULA

At Foord Asset Management we believe in investing for the long term. Our track record over 30 years is proof that managing investment risk and compounding superior returns are key to the creation of exceptional wealth.

A Bloomberg report after the Easter long weekend revealed just this investor mentality. The report showed that European investors had reacted to the downtime with a clear directive to sell all risky assets, setting the stage for further declines in the US stock market and keeping the momentum in favour of a continued flight to safe-havens.

Meanwhile, Max King, strategist in Investec Asset Management’s Global Multi-Asset team believes that the conservative positioning of investors could be an indication that things are about to change. US mutual funds saw seven consecutive months of equity out-flows in late 2011, equaling the 2008 record. This signals a contrarian buying signal for equities as markets are likely to change direction when the selling pressure abates or reverses,” he said.

Tony Gibson, senior portfolio manager at Coronation Fund Managers, observes that in spite of asset managers’ views on equities, investors are still shying away from them. “Despite the numerous arguments in favour of equities, investors are still running scared. In fact, given the many risks of inflation, low interest rates and lower returns, investors should be looking at a higher equity rating in their portfolios.”

According to Gibson, “There is little question that the US is recovering and I

think it will surprise on the upside.” De Wet is more cautiously optimistic. “The reality is that although global growth may be slower, corporate profitability and equity returns may not necessarily be lower over a reasonable investment horizon of five to seven years,” he said.

King takes this view a step further – almost encouraging investors to take on some more risk despite all the negativity in the news. “Looking ahead, we would expect to see risk assets continue their strong start to the year, leaving most investors on the sidelines. Our view is for investment returns to be significantly higher in 2012 than in 2011, despite a difficult time for government bonds. A broadening equity market is likely to favour emerging markets, non-US developed markets, smaller companies and cyclical sectors while attractive value in corporate credit, high yield, emerging market debt and Asian government bonds should allow positive returns from bonds also,” King said.

Considering the views of South African asset managers and investment analysts, it seems the daily headlines need to be taken with a pinch of salt. It’s a fact that headlines sell papers. Therefore, investors are best advised to to rely on proven research and not the daily news headline for investment advice.

ASSet MAnAgeMent

“Despite the numerous arguments in favour of equities, investors are still running scared. In fact, given the many risks of inflation, low interest rates and lower returns, investors should be looking at a higher equity rating in their portfolios.”

INVESTSA34

MAYA fiSHer-frencH

wHat is best advice?A sense of disquiet has been growing among independent financial advisers around the pricing of certain investment products sold by tied agents. When a product’s cost structure makes it virtually impossible to beat a cash rate or when other equally good solutions exist at a lower cost, is it best advice to put a client into that product?

One of our large financial institutions is offering an education plan starting at R150 per month. The fees on the plan are so significant that it results in a reduction in yield of 5.9 per cent. That essentially means that the underlying investment would have to perform at around 11 per cent just to match a cash return after costs.

Considering the product is aimed at the mass market, there is no tax benefit on the endowment structure, nor is the estate planning aspect of any benefit. In fact there is absolutely no product benefit in an endowment structure for a lower income earner other than the fact that it creates a forced savings plan. How then can an adviser knowingly sell the product and meet the best advice criteria?

The counter argument is that there are no other investment products that allow for such low monthly investments and the fixed costs of offering the solution are very high.

This is a spurious argument. Firstly the client would be better off simply by putting their money with Capitec where they would receive six per cent per annum. In fact, they could opt for a 24-month fixed deposit allowing for monthly contributions which would pay them 6.25 per cent. Secondly there are several unit trusts that offer minimum contributions from

R100 per month which would give them the benefit of growth from the equity markets at a lower cost.

“The client would be better off simply by putting their money with Capitec where they would receive six per cent per annum.”

The problem really is that no adviser is going to sell those unit trusts. The requirements under FAIS do not make it financially viable for an adviser to build a business on the R4.50 per month they would receive from a selling a unit trust for R150 per month. Endowment policies allow the adviser to receive a significant portion of the commission upfront which pays for the time spent with the client. This is the real reason endowments are still sold to the mass market, not because it is a good product.

Some would argue, and possibly correctly, that the individual may not be saving at all if

it was not for the financial adviser, therefore the value of the advice is incalculable. Finding ways for mass market clients to pay for highly regulated advice remains a challenge for the industry, but investment products that are virtually guaranteed to underperform cash are not the answer and the industry is going to have to start thinking out of the box on how to deliver products at prices affordable to the client, not only to the provider.

There are now calls for the Financial Services Board to start looking at the costs associated with investment products. Finance Minister Pravin Gordhan raised the issue in his 2012 Budget address when he stated, “Fees for many products in the financial sector remain too high. High costs in savings products undermine the national objective of getting our people to save more. The financial industry must take more urgent steps to reduce costs and introduce more appropriate and transparent savings and investment products, including annuities.”

What really is needed now is a complete rethink around how financial advice is offered, who pays for it and ultimately what really constitutes the best financial advice. What we do know is that product structures based on remuneration of the distribution force rather than client needs is not a solution.

35INVESTSA

Fred van der Vyver | Head of Guaranteed Investment Portfolios at Old Mutual Corporate

As such, members are urged to carefully consider the investment options available to them to ensure they have the appropriate strategy to achieve their retirement goals.

Fred van der Vyver, Head of Guaranteed Investment Portfolios at Old Mutual Corporate says due to the current economic challenges and the high cost of living, the stakes are so much higher for individuals.

“Many South Africans simply cannot afford to save any more money. This means they also cannot afford to lose any value in their savings and often, this can result in them being more comfortable investing in very conservative portfolios,” he says.

Van der Vyver warns that conservative asset classes such as bonds and cash may not provide sufficient real returns over the long term. “In order for investors to achieve their retirement goals, the investment strategy needs to include sufficient investment in growth asset classes such as local and international equities, property and alternative growth asset classes such as private equity,” he says.

According to Van der Vyver, aggressive balanced funds aim to achieve this objective by investing large proportions of the fund in these growth asset classes. However, since the move from defined benefit to defined contribution funds, the investment risk has been transferred to members, who therefore tend to opt for a more conservative balanced fund strategy instead.

“While a conservative balanced fund will ensure that members’ savings do not fluctuate as much in value, they are also unlikely to produce the required returns over the long-run to ensure the member can retire comfortably” he says.

Van der Vyver explains that the significant reduction in volatility in the conservative balanced fund is coupled with a similarly significant reduction in returns over the long term. “Although this strategy may reduce the volatility and market risk that the investor faces, it introduces a different kind of risk. Many members may not be fully aware of this,” he warns.

According to Van der Vyver, one option that can assist investors in achieving real returns over the long term, but without the volatility of returns over the short term is the use of smoothed-bonus funds. “Smoothed bonus funds essentially allow members the option to transfer some of the investment risk that comes with a defined contribution arrangement to an insurance company,” he says.

According to Van der Vyver, they have three distinct components: an underlying balanced fund that generates real returns; a smoothing capability that reduces the volatility of the underlying returns; and various levels of guarantees that can be added,” he says.

Van der Vyver explains that the underlying balanced fund is the driver of the smoothed bonus fund‘s returns over the long term. “This means that the long-term expected return for

smoothed bonus funds will be similar to a similarly managed market-linked balanced fund, before any guarantee charges. The second component, which is the smoothing of returns, reduces the volatility of the underlying returns significantly.”

Furthermore, he says given that a bonus smoothing reserve (BSR) can be used to absorb the short-term volatility, it is possible to further increase exposure to growth asset classes to 80%, and still achieve volatility below that of conservative balanced funds.

Van der Vyver adds that the third component of smoothed bonus funds, namely guarantees, offers an additional layer of protection to members that is not possible with a balanced fund. “These guarantees ensure that members can have absolute certainty about their minimum retirement benefits irrespective of what happens in investment markets – which is obviously a very beneficial aspect of the fund for members that are nearing retirement,” he says.

retirement fund memberS urged to conSider more aggreSSive inveStment optionS available

retireMent inveSting

Current volatile market conditions mean that members of retirement funds may tend to invest in more conservative asset classes. While this strategy may protect their portfolios from some short-term volatility, it is unlikely to help them achieve their long-term investment goals.

“Although this strategy may reduce the volatility and market risk that the investor faces, it introduces a different kind of risk. Many members may not be fully aware of this.”

INVESTSA36

Satisfying a key investment principle of asset

diversification, the differentiation between the

two asset classes now permits a retirement fund

to invest up to 15 per cent of its assets into

participation mortgage bonds and an additional

15 per cent under immovable property.

This change has opened up immovable property as

an asset class to retirement fund trustees looking to

satisfy a well-balanced retirement investment strategy.

WHY PROPERTY?

Property is considered one of the largest and

most widely held asset classes. Satisfying the

moderate risk appetite, it presents itself as a

typical middle-of-the-road investment option.

Considered as a key component of a retirement fund

investment, property is a solid performing, long-term

investment. Moreover, as a tangible investment, it

satisfies the retirement fund investment objectives

of capital preservation and a return that is in line or

above inflation with the least associated risk.

For those who do not have the level of capital

required for direct property ownership, a

property portfolio is a mechanism through

which investing in the direct property market is

made possible. Without directly having to own

or manage property, a retirement fund can

invest in immovable property as an asset class.

DIRECT PROPERTY OFFERS SIGNIFICANT RETURN

Unlike listed property that is vulnerable to

market sentiment and thus downturn, unlisted

or direct property offers significant returns

based on the property fundamentals of rental

income and capital appreciation.

Direct property offers diversification from

the market, as its performance is not linked

to market sentiment. Reflecting the property

cycle, the valuing of direct property is

conducted annually as opposed to daily

pricing of shares that affect listed

property investment.

WHAT IS THE RETURN?

Investment in a property portfolio is classified

as a moderate risk, promising a consistent

and stable investment return. The investment

return comprises both an income stream

from rentals and capital appreciation from

the increase in the value of the properties.

The significance of the investment return

is that as inflation escalates, so does the

property rental price and the overall value of

the property. An increase in inflation means

an increase in an investor’s return.

DIVERSIFICATION REDUCES RISK

Adding to the attractive return, a diversified

property portfolio reduces the risk of

compromising capital. In accordance with

the principle of not placing all your apples

into one basket, a property portfolio is

diversified either by sector or geographical

location. This investment principle minimises

risk, as the investment is spread collectively

over various property sectors and areas.

Balanced exposure ultimately ensures the

stability of a property portfolio.

Adequately diversified portfolios include a

range of commercial, industrial and retail

properties. Serving multiple purposes, a

diverse property selection ensures an appeal

to a wide range of tenants which, in turn,

guarantees a secure and consistent rental

income. Although driven largely by economic

prosperity, geographical diversification

ensures that the risk associated with investing

in property is spread over a combination of

established and emerging areas. Thus, a

property portfolio is exposed to the returns

that characterise both established and

emerging property markets, with the stability

of the return from established markets

stabilising the volatility of the return from

emerging markets.

REGULAR INCOME STREAM; LONG-TERM CAPITAL GROWTH AND SECURITY

A property portfolio presents a retirement

fund with an investment that provides a

regular income stream from rental income,

coupled with long-term capital growth.

In addition to reaping the benefits of the

security provided by owning property,

retirement funds can invest in property as

an asset class without directly having to

own and manage properties. Its attractive

characteristics satisfy the prudential

investment guidelines of Regulation 28,

affirming its place on the retirement

investment radar.

cHanges to regulation 28 aFFirm immovable property’s place in retirement Fund investments

regULAtorY DeveLopMentS

Walter van der Merwe | CEO FedGroup Life, FedGroup Financial Services

The new Regulation 28 of the Pensions Fund Act came into effect on the 1 July 2011 as a regulatory intervention to ensure that retirement savings are invested in a prudent manner resulting in a diversified retirement fund investment. From an asset management perspective, an encouraging change is the differentiation of immovable property and participation mortgage bonds which were previously classified under the same asset class.

37INVESTSA

Listed property has consistently outperformed other asset classes over the past 10 years, during which time it caught the attention of institutional investors and players in the physical

property market. This resulted in numerous new listings during the early to mid-2000s as owners of physical property sold their assets into listed portfolios in order to reap the benefits of improved liquidity and diversification.

The listed property sector has grown from a total market cap of R13 billion in 2002 to R160 billion currently, increasing its contribution to the All Share Index from one to three per cent. Therefore on a relative basis it has tripled in size, which is significant.

In order to take a view on expected returns going forward, particularly on the back of such strong absolute and relative performance, it is important to understand what has driven performance historically. In essence, listed property is an equity/bond hybrid. It has bond characteristics because listed property stocks do not retain earnings, but pay out all net income in the form of an income distribution. It is therefore attractive from an income perspective and is an alternative to bonds and cash. However, income is not fixed, but fluctuates depending on the underlying net rental growth from the properties which the stock owns. This gives it equity characteristics. There are two major cycles that drive listed property performance – long bond yields and GDP growth.

During the early part of the 2000’s listed property bull market, prices rallied on the back of falling inflation which drove bond yields, and hence listed property yields, down. When yields fall, capital values rise and vice versa.

This price rally then continued because of high real growth in income distributions as rentals in the physical property market were driven higher by the strong economy. Where are we now? Long bond yields are low and the economy is sluggish. We have already seen how the latter has reduced the growth rate of income distributions paid out by listed property stocks, with some even reporting negative growth rates. For investors looking for a strong run in prices, this looks like a disappointing space to be in and it is. As paradoxical as it may sound, this is one of the attractions of listed property. This is when the income component comes in to play.

The income expected to be paid out by listed property stocks is, on average, between seven and eight per cent on current prices. This is very similar to long bond yields and better than cash. For a basket of carefully selected listed property stocks, the growth in income distributions over the next 12 months is expected to be between five and six per cent. This income growth element makes listed property more attractive than bonds because the initial yields are similar. So, listed property does have a place in a

balanced portfolio. For income dependent investors, a yield that is higher than cash and which grows over time is appealing. A very important point is that listed property does have capital volatility, so income-dependent investors need to have the nerves for fluctuations in capital values. At some point bond yields will go up, which is negative for listed property prices. An entry point now needs a long investment horizon.

In order to access this market, it is best to seek the advice of a financial adviser to select an investment product that is professionally managed by an asset management company with both property and fixed income expertise. The various listed property stocks have varying degrees (and types) of risk, so astute stock selection is crucial.

overvieW of tHe LiSteD propertY MArketMariette Warner | Listed Property Fund Manager, Absa Asset Management

“The listed property sector has

grown from a total market cap

of R13 billion in 2002 to R160

billion currently, increasing its

contribution to the All Share

Index from one to three per

cent. Therefore on a relative

basis it has tripled in size, which

is significant.”

propertY focUS

INVESTSA38

please outline your investment strategy and philosophy for the fund.

As a long-short equity hedge fund focusing on the South African equity market, we apply fundamental analysis to assist us with bottom-up stock picking to select the shares we wish to purchase. In the same process, we identify the shares that we like the least – these shares form the core of our shorts. The hedge fund structure provides us with tools to further reduce portfolio risk. Our philosophy is to buy shares that are priced incorrectly relative to our expectations (i.e. reasonably priced companies that are expected to continue operating successfully), and to short shares of companies that are facing problems which are not expected to be resolved in the short to medium term.

What are your top five holdings at present?

Naspers, MTN, Cashbuild, Life Healthcare and British American Tobacco.

Who is the fund appropriate for?

We believe that this fund is appropriate for sophisticated investors looking for exceptional risk-adjusted returns in a fund that captures significant market upside while still protecting against market downturns.

Have you made any major portfolio changes recently?

No.

How have you positioned the fund for 2012?

Hedge funds allow significant flexibility and adaptability in terms of the way in which the fund is positioned. The structure allows us to easily shift our position, but we do not position the fund with a view on how markets might perform over the short term, our strategy is long term in nature.

please provide some information around the team responsible for managing the fund.

The fund is managed by a team. The original team has worked together for more than 15 years, initially at HSBC and then at Investec. 36ONE Asset Management was established in late 2004. Carefully selected team members have been incrementally added over time. The focused team is highly skilled, experienced, dedicated and passionate.

please provide performance of the fund over one, three and five years (please include benchmark).

The fund returned 24.5 per cent over one year to 31 March 2012 (benchmark: five per cent); 25.3 per cent p.a. over three years (benchmark: 5.9 per cent p.a.) and 16.4 per cent p.a. over the last five years to 31 March 2012 (benchmark: 7.8 per cent p.a.).

please outline fee structure of the fund.

Management fee: 1 per cent p.a.Performance fee: 20 per cent of gains using the high watermark principle.

Why would investors choose this fund above others?

This fund has an exceptional performance track record over an extended period of time. It is one of South Africa’s largest hedge funds. Investors would choose this fund due to its ability to consistently deliver excellent performance

Steven Liptz | Co-founder

“We believe that this fund is appropriate for sophisticated investors looking for exceptional risk-adjusted returns in a fund that captures significant market upside while still protecting against market downturns.”

fUnD profiLe - 36one

profile

39INVESTSA

fUnD profiLe

MorningStAr tAkeS Stock

MTN Group (JSE: MTN) made headlines in April

on allegations that it has engaged in all sorts of

underhandedness. The accusations claim that MTN

engaged in deliberate bribery and manipulation

in order to supplant Turkcell as the provider of

private cell phone service in Iran. More recently

the Democratic Alliance (DA) has requested that

the South African Rights Commission investigate

MTN for violation of human rights in Iran by

allowing the Iranian government the ability to

eavesdrop on MTN-Irancell (which MTN Group

owns 49% of)customers.

Correspondingly MTN’s stock price fell 8.5% on

the news to close trading on April 4 at R127,55.

Given MTN’s relative weight within the South

African stock market it is a core holding in many

South African equity funds. The following funds

in our database had the largest exposure to

MTN Group:

It is worth noting that it is possible these funds have added to or reduced their exposures to MTN since their last reported holdings. But with the data we do have none of these funds has an exposure to the stock that couldn’t be liquidated very quickly should the fund manager deem it desirable to do so.

FUND

Momentum Industrial

Satrix Indi

Coronation Industrial

SYmmETRY Satellite Eq No.4

STANLIB SWIX 40 ETF

Momentum Structured Equity

Old Mutual Top Companies

BoE Core Equity

SYmmETRY Satellite Eq No.3

Nedgroup Inv Rainmaker

27Four Active Equity

Dibanisa Absolute Return

Portfolio Date

2011/12/31

2012/04/04

2011/09/30

2011/12/31

2011/12/31

2011/12/31

2011/12/31

2011/12/31

2011/12/31

2011/12/31

2011/12/31

2011/12/31

% of Portfolio

16.3

13.1

12.0

11.9

11.3

11.3

11.3

10.7

10.5

10.5

10.5

10.2

Position Market Value

R 16 985 436

R 91 314 421

R 24 684 750

R 14 756 040

R 248 420 515

R 16 317 954

R 187 640 090

R 80 632 530

R 327 704 400

R 1 445 923 800

R 2 777 584

R 5 749 200

# of day to liquidate

0.0

0.0

0.0

0.0

0.2

0.0

0.1

0.1

0.3

1.1

0.0

0.0

of Mtn exposure

“tHe democratic alliance (da) Has requested tHat tHe soutH aFrican rigHts commission investigate mtn For violation oF Human rigHts in iran.”

INVESTSA40

SUneL veLDtMAn

You will never have enough… So don’t even bother

Week after week these

headlines appear in the

press. We read reports

of dishonest advisers,

regulatory changes,

high fees on retirement products and the

unaffordability of retirement. While I do

not doubt the validity of these reports, they

tend to focus on the negative aspects of

retirement savings.

Negative news and sensation sells

newspapers. The awards for the best

financial journalists often go to the ones

who have dug up the biggest scandals.

Educational articles are often boring and

repetitive. Just think about it. Have you

ever read a headline entitled: “Steady

saving helps couple to retire.” What’s

more, financial news channels have turned

financial data into entertainment. Around

the clock, financial news stations create the

impression that ordinary people need to be

in touch with their money. Every day, endless

streams of experts appear on TV and radio,

informing ordinary people what they should

do with their money, often with conflicting

advice from minute to minute.

I have also seen ‘experts’ advise ordinary

people to take extraordinary risks with their

retirement savings. For example, a while

ago an article suggested that investing in

agricultural derivatives might be a good

solution to retirement savings. Another

one suggested five stocks as enough

diversification for a retirement portfolio. I

have seen advice that suggests buying your

own business or buy-to-let properties are the

only options to save enough for retirement.

I suspect that for many the notion of

retirement savings is fraught with danger. I

suspect that many ordinary people think that

they simply do not have what it takes to save

for retirement. I suspect that many do not

even bother. If I put myself in their shoes, I

might have given up too.

Don’t get me wrong. The financial industry is

guilty of many practices that have wounded

people’s ability to retire comfortably. Industry

change was necessary and is still necessary.

That said, the whole industry is not entirely

rotten. For every one financial adviser who

is guilty of transgression, there are hundreds

who are honest and who have helped people

to successfully retire.

Fortunately, all is not lost. I recently met with

three couples who used ordinary retirement

vehicles and old-fashioned unit trusts to

save enough money for very comfortable

retirements. Once again it reminded me that

saving for retirement is not rocket science. It

also reminded me that there are a few basic

(but boring) principles for retiring well. I think

it might a good reminder to us all, advisers

and clients alike.

Mr and Mrs Entrepreneur started their

own business 20 years ago. When Mr

Entrepreneur resigned from his job, he

preserved his accumulated pension in a

preservation fund. When his business started

to earn enough money to pay him a salary,

he contacted a financial adviser who sold

him a retirement annuity. Soon after, his

wife joined him in the business. She also

preserved her pension and started saving in

a retirement annuity.

Sunél Veldtman, CFP CFA is the author of Manage Your Money, Live Your Dream, a guide to financial wellbeing for women. She is also a presenter and facilitator. She has more than 20 years of experience in financial services, most of which as a private client adviser.

“For every one financial adviser who is guilty of transgression, there are hundreds who are honest and who have helped people to successfully retire.”

41INVESTSA

As they earned more, they increased their

retirement annuity contributions. In their fifties

they also contributed regularly to unit trusts,

always maintaining a balanced exposure

to different asset classes in their overall

portfolio.

When I met with Mr and Mrs Entrepreneur,

they had accumulated enough money to

retire comfortably and travel extensively after

their retirement. I was interested to see that

although there were a few advisers involved

over the years, all of them had recommended

well-diversified investment portfolios, which

stood the couple in good stead.

Mrs Steady has worked for the same large

company for the past 20 years. She is now

approaching retirement. She diligently

contributed to her pension fund for all those

years. In addition, she also contributed to

retirement annuities to ensure that she utilised

the maximum tax benefit every year. Over the

years, Mrs Steady was also advised to invest

in endowments and unit trusts. Although

she was fortunate enough to inherit some

money from her mum, she would have been

able to retire comfortably even without this

inheritance. Once again, I was impressed

by the balanced nature of her investment

portfolio. She will now not only be able to

retire at 60, but will also fulfill her dream of

travelling extensively during retirement.

Mr and Mrs Independent took a slightly

different route, but with equally impressive

results. Ten years ago, Mr Independent

realised that he was paying high fees on

particularly opaque savings products. He

made a decision to cash in these products

and to rather invest in a more transparent

and independent way. Although Mr

Independent retained his preservation funds,

from his previous employment, he contacted

a stockbroker and started a share portfolio.

Even though he allowed the portfolio

manager at the broking firm to manage the

portfolio, he kept in close contact, ensuring

that he fully understood the rationale for the

transactions and often initiated changes in

the portfolio. Over the years, they built up a

large portfolio of quality shares. The couple

is now ready to retire. They will benefit from

the portfolio’s dividend income, as well as

the income from their retirement savings.

They will be able to help their grown-up kids

further their education, put down deposits

on their first properties and pay for future

wedding expenses. They will also be able to

afford a comfortable retirement.

All of these people managed to educate

their children. They did not indulge them with

expensive lifestyles, although they are now in

the position to help them financially.

These three stories illustrate that ordinary

working people can save for retirement.

There are seven keys hidden in these stories:

1. Saving is a discipline, fashioned over

a long period of time. Put the power of

compounding on your side.

2. All of these clients had modest lifestyles,

which enabled them to save.

3. Saving in expensive vehicles is better

than not saving at all. Although cheaper

retirement options are available now, this

was not always the case. These days it is

possible to closely monitor the costs of

retirement vehicles and everyone should.

4. Preserving pension fund benefits

contributes significantly to a successful

retirement. It not only preserves tax

benefits in your savings, but also

allows the capital to benefit from

years of compounding. I fully support

the government’s initiatives to make

preservation compulsory.

5. A diversified portfolio improves the

investor’s experience over the years

and helps them to stick with the initial

plan. I have seen single sector funds in

retirement vehicles destroy the faith of the

investor, in the retirement vehicle itself. I

believe that forcing investors to stick with

Regulation 28, in retirement vehicles, will

only increase the likelihood that more

people will retire comfortably.

6. Utilising the tax advantages of retirement

vehicles also puts the power of

compounding on your side and helps you

to save more over time.

7. Having both discretionary and retirement

savings provides investors with flexibility – it

provides the best of both worlds. It also sets

up retirees with more than one income stream

and protects against regulatory changes.

Contrary to the picture painted out there, it is

possible to retire successfully.

“I was impressed by the balanced nature of her investment portfolio. She will now not only be able to retire at 60, but will also fulfill her dream of travelling extensively during retirement.”

“BANK PAYS FOR ADVISER’S SCAM.”

“GOVERNMENT TO OVERHAUL PENSION INDUSTRY.”

“BE THE MINORITY THAT CAN AFFORD TO RETIRE.”

INVESTSA42

HOTAfricA to BecoMe tHe SeconD-fASteSt

groWing region According to the International Monetary Fund, over the next five

years, seven of the top 10 fastest-growing economies will be from Africa. This can be attributed to African governments making

it easier to do business in the countries and welcoming economic investments.

ceoS optiMiStic for 2012The Merchantex CEO Confidence index, which collates views

from more than a 100 CEOs of mostly listed South African companies, revealed a 20 per cent increase to 65.6 points in the first quarter of 2012. This is the highest score reported since the index’s inception in the second quarter of 2009 and highlights a renewed optimism amongst CEOs towards the overall economic

environment for 2012.

groWtH in eMerging MArketSAccording to the HSBC’s emerging markets index (EMI), emerging markets recorded the fastest economic growth in three quarters in

the first quarter of 2012 due to manufacturing rebounding and the services sector accelerating. The index is based on 21 service

and manufacturing sector purchasing managers’ surveys in 16 emerging economies.

SHoprite’S r8 BiLLion AfricAn expAnSion SeeS SHAreS Drop BY 7.7 per centShoprite saw share prices fall by 7.7 per cent as they announced they were seeking R8 billion from the market. The share and bond offering is aimed at expanding operations in South Africa and Africa. Analysts believe it is a strategic move aimed at directly taking on Walmart in Africa as they look to pursue the huge opportunities that exist on the continent.

sideways

NOT

BAroMeter

DiSneY Set to report An operAting LoSS of over $80 MiLLion DUe to JoHn cArter fLopWalt Disney has reported that the movie John Carter will post a loss of approximately $200 million after it cost $250 million to produce. This may result in it being the worst performing movie of all time. Disney could report an operating loss of approximately $80 million to $120 million at the end of the second quarter of this year.

tHe WorLD BAnk DecreASeS cHinA econoMic groWtH forecAStThe World Bank has decreased its forecast of China’s economic growth to 8.2 per cent. The forecast will result in the lowest growth rate in 13 years. China has lowered its growth target to 7.5 per cent.

S&p DoWngrADeS SoUtH AfricA’S econoMic oUtLookS&P has downgraded South Africa’s economic outlook from stable to negative, due to reported structural economic and social problems. This follows an earlier move by Moody’s and Fitch to downgrade the country’s outlook.

The Total return performance data for the period ended 30 March 2012, indicates that a number of divergent ETF/ETN products were able to better the 5,74% total return provided by the JSE All Share Index over the first 3 months of this year.

Market Beating performance18 of the ETFs/ETNs that have been in issue for more than one year (or 60% of all passive ETFs/ETNs over the past year), were able to provide a total return performance in excess of the All Share Index. This tends to refute the view that only active fund managers can outperform the general market benchmark. The wide variety of index classes and assets tracked now provides the investor with a strong choice of market listed portfolios to meet most investment objectives.

Alternatively, using such Exchange Traded Products as the building blocks in portfolio construction, taking advantage of their low costs and instant liquidity, enables the fund manager to provide alpha (market-beating performance), utilising passive funds as the portfolio components.

etfSA.co.za

Mike Brown | Managing Director | etfSA.co.za

Now, for the first time ever, all South Africa’s ETFs & ETNs on a SINGLE WEBSITE.

Visit the website: www.etfsa.co.za or call 0861 383 721 (0861 ETFSA1)

• Everything you need to know about each ETF/ETN• Absa (NewFunds), BIPS (RMB), DBX Trackers, Investec, Nedbank, Proptrax, Satrix,

Standard Commodity Linkers • Transact online all ETFs/ETNs • Low costs • Easy access & switching• From R300 per month• From R1000 for lump sums

quarterly etF/etn perFormanCe survey For First quarter 2012

Year to date (past three months)Fund Total return* (%)Satrix FINI 15 13.36DBX Africa 12.72NewFunds eRAFI FINI 15 12.57Satrix DIVI Plus 12.43Standard Bank Platinum-Linker 11.32Standard Bank Silver-Linker 10.52Satrix INDI 25 10.25Standard Bank Africa Equity 9.27NewFunds INDI 25 9.36Nedbank BettaBeta Top 40 7.55RemarksAfrica funds have been the short-term top performers. On

the domestic front, financial and industrial indices have

come to the fore. Silver and platinum funds have shown

recovery. * Measures capital plus dividend reinvested on a NAV to NAV

basis.

Data provided by etfSA.co.za and Profile Media Funds Data (for

period ended 30/03/2012).

PASSIVE INVESTMENT ETF/ETN FUNDS THAT BEAT THE ALL SHARE INDEX OVER THE PAST

YEAR

FundTotal return

performance (%)Index/asset tracked

NewGold ETF 31.01 Spot gold bullion price

Standard Bank Gold-Linker ETN 30.61 Futures gold bullion price

Satrix DIVI Plus ETF 23.13 FTSE/JSE Dividend Plus

DBX Tracker MSCI USA ETF 20.43 MSCI USA

Satrix INDI 25 ETF 19.26 FTSE/JSE INDI 25

Satrix FINI 15 ETF 19.14 FTSE/JSE FINI 15

NewFunds eRAFI FINI 15 ETF 17.05 Enhanced RAFI Financial 15

Proptrax SAPY ETF 16.09 FTSE/JSE SAPY Property

NewFunds eRAFI INDI 25 ETF 15.95 Enhanced RAFI Industrial 25

RMB Inflation-X ETF 14.15 ILBI Index

zShares GOVI ETF 12.98 GOVI Bonds

DBX World ETF 12.27 MSCI World

DBX Japan ETF 12.19 MSCI Japan

DBX FTSE 100 ETF 11.68 FTSE 100

BettaBeta Top 40 ETF 9.36 FTSE/JSE EWT 40

Satrix RAFI 40 ETF 8.94 FTSE/JSE RAFI Total Return

Stanlib SWIX Top 40 ETF 8.78 FTSE/JSE SWIX Top 40

Satrix SWIX Top 40 ETF 7.92 FTSE/JSE SWIX Top 40

JSE All Share Index 7.29 FTSE/JSE ALSI Total Return

Source: etfSA.co.za / Profile Media / JSE (for period ended 30/03/2012).

INVESTSA44 INVESTSA44

inDUStrY neWS

Appointments

MitonOptimal, the specialist global multi asset management company, has appointed Andy Pfaff to lead the development of a domestic commodity fund management business in Cape Town. Pfaff has many years’ experience on investment bank proprietary trading desks, including Investec and Rand Merchant Bank, and was a founder of Trendline hedge fund management.

Gordon Webb has been appointed by Investment Solutions to serve as a client servicing account manager to various blue-chip companies, and will be responsible for building and maintaining relationships with institutional clients on retirement and investment opportunities. With this addition, the institutional business team is well positioned to provide service to over 1 900 retirement funds.

Statucor has appointed Alun Rich as a director in the Cape Town office. Rich was founder member of Wilson Rich and Associates, the largest independent company secretarial practice in Cape Town. He brings extensive company secretarial experience to the Cape business community.

Grindrod Asset Management and Plexus Group have announced plans of an agreement to merge the respective asset management businesses, including Plexus Global Asset Management domiciled in Hong Kong.

The merger is subject to signing of agreements and obtaining regulatory approval, and will see each business bringing in excess of R4 billion of assets under management or advice to the consolidated investment management business. The new entity will operate under the Grindrod Asset Management brand.

Dr Prieur du Plessis, chairman of the Plexus Group, said that the merging of these two boutique entities will create a strong player in the asset management industry. “We have identified many synergies over the past few years and it became clear that a formal merger of the complementary Plexus and Grindrod Asset Management investment teams and

supporting services would be beneficial to both shareholders and clients alike.”

Senior executives from both Grindrod Asset Management and Plexus will fill the leadership positions in the new entity. Dr Du Plessis will be the non-executive chairman, with Mark Logan of Grindrod Asset Management and Paul Stewart of Plexus Asset Management as executive directors. Grindrod Asset Management’s Ian Anderson will take the role of chief investment officer, while Ian Pallot of Plexus will head up finance and operations.

“The merger will give the Plexus team access to the additional proprietary research of the experienced Grindrod Asset Management investment team and wide coverage of broader aspects of the investment markets, which we believe will lead to excellent investment outcomes over time,” said Paul Stewart, executive director.

merger of grindrod aSSet management and plexuS group on the cardS

Following strong financial results for the period ending February 2012, PSG Group, the Stellenbosch-based diversified investment group, has announced a plan for bigger acquisitions.

Piet Mouton, CEO of PSG, said PSG is looking for bigger investments in order to have a bigger influence. “We look at two to three investments a week. But a lot of them don’t fit what we want to do. So we are going to be quite selective about acquisitions.” PSG has just over R400 million in cash to spend after committing over R200 million to its subsidiary Curro by following a rights issue earlier in the year.

According to Mouton, education is one area in which the group had appetite for investment and acquisition with PSG already owning 63 per cent of Curro Holdings, which acquires, develops and manages private schools.

Andy pfaff gordon Webb Alun rich

pSg on acquiSition path

45INVESTSA 45INVESTSA 45

hermanS & roman announce planS to liSt on JSeHermans & Roman Properties has announced plans to list on the JSE in the

second quarter of 2012, bringing R3.6 billion worth of assets onto the market

and presenting new opportunities to investors.

According to the company, over the past 10 years it developed into a substantial

property management business and has managed real estate portfolios that the

directors estimate to be worth in excess of R20 billion in aggregate.

Leslie Hermans, CEO of Hermans & Roberts, said it has been quite a journey

for the company which has assembled a portfolio of high-quality, regionally

prominent and scarce prime properties offering stable, defensive cash flows

and value-creation potential. “Our focus post-listing will be to grow the

portfolio and deliver superior shareholder returns."

He said that although the company had a number of potential acquisitions in

the pipeline, the focus was on acquiring fewer but larger assets rather than a

lot of smaller assets.

Hermans & Roman’s portfolio comprises three retail properties and two office

properties and would be managed internally by the company’s team of real

estate professionals.

S&p 500 outperformed bY JSeIf converted to US Dollars and indexed to 2000, the JSE

all-share index outperformed the US S&P 500.

This is according to Chris Gilmour of Absa Investments,

who said that the S&P 500 has failed to get above its

2000 level in real terms, while the JSE has outperformed

both the S&P 500 in Dollar terms as well as SA inflation

over this period.

Without Apple’s income, earnings for the rest of the S&P

500 companies would have been flat, said Gilmour.

Furthermore, the S&P 500 companies derived around

40 per cent of their earnings outside the US, so they

were more as a result of play on global growth rather

than US growth on its own. That is why the continued

festering of the European sovereign debt situation was a

global problem.

Gilmour added that SA retail sales appear to be running

out of steam so certain retailers look expensive and the

retail index has outperformed the all share index since

2007. “Resource stocks are now at very attractive levels.

We prefer to have an exposure to gold via exchange

traded funds rather than gold mining shares. Sasol

appears to be very good value, but construction shares

are expected to remain in the doldrums for the next two

years,” he concluded.

reSearch revealS phaSing in outperformS a lump Sum

Recent research conducted on lump

sum investing by acsis Research

and Investment Management (RIM),

reveals that phasing in outperforms

a lump sum only approximately 40

per cent of the time. This is based

on comparing the returns of each

approach after 12 months.

Johnathan Brummer of acsis said

that phasing in an investment

reduces the downside risk of

investing. For example, phasing in

over nine months reveals that the

worst 12-month return was -30 per

cent compared to -48 per cent for

a lump sum. “The risk reduction

does, however, come at a cost. The

research revealed that the maximum

12-month return is reduced from

125 per cent for a lump sum to 88

per cent when phasing in over 12

months, and the average return

decreases from 16.91 per cent for

a lump sum to 13.01 per cent when

phasing in over nine months.”

He said that the acsis research also

sheds light on the most favourable

phasing in period. “It shows that

there is very little difference in return

when phasing in over three months

versus investing a lump sum. If

phasing in, a period of between

six and 12 months should be used.

As with any risk mitigation strategy,

both risk and return will be reduced

and a decision will need to be made

as to whether the cost is worth it.

The larger the size of the lump sum

in relation to the total portfolio,

the more important risk reduction

becomes and the more sense it

would make to phase in.”

Brummer also explained that

because markets trend upwards,

on average, phasing in will mean

a lower return than a lump sum

investment, as the investor is out of

the market for a longer period.

“Resource stocks are now at very attractive levels. We prefer to have an exposure to gold via exchange traded funds rather than gold mining shares. Sasol appears to be very good value, but construction shares are expected to remain in the doldrums for the next two years.”

INVESTSA46

Glacier by Sanlam launches Glacier P2 Strategies

Glacier by Sanlam has launched Glacier P2 Strategies, an investment option overlaid on funds that balance growth with safety, following the successful launch by Glacier International, in 2010, of the P2 Strategies on its international platform.

The strategies are now available to investors on the local platform and allow investors to invest more money in growth assets such as equities, while helping to reduce the risk of sudden and large losses in their portfolio due to market downturns.

This is achieved through dynamic rebalancing of the client’s portfolio between growth assets and money market instruments according to how the markets are performing. So when equity markets are declining, for example, a greater proportion of the client’s portfolio will be allocated to money market instruments; but as equity markets rise, so the allocation to growth assets will increase. Clients can also personalise their investment according to their own risk profile by selecting the level of preservation they require.Glacier P2 Strategies therefore gives clients more control over their investments and retirement planning.

Verusha Ramlakhan, product manager at Glacier by Sanlam, said that in the 21st century people not only live

longer, but also retire earlier, so preserving and growing capital is more important than ever, and this means having a certain portion of investment in growth assets.

Typically clients want the same income when they retire as they had before retirement. “However, looking at the retirement annuity (RA) and investment-linked living annuity (ILLA) investments on our platform, we can see that clients are cautious when it comes to investing in growth assets,” she said.

“Forty-five per cent of RA investors in the 35 – 45 age group have less than 50 per cent in growth assets. When looking at investors in the investment-linked living annuity (a post-retirement product), the percentage allocated to growth assets is lower still.”

“Glacier P2 Strategies provides clients with the peace of mind to stay invested in the markets despite the volatility, as the strategies aim to limit large drops in the value of the portfolio. It also assists in smoothing the path between pre- and post-retirement saving by providing comfort over the level of return on the investment.”

The investment is managed on a daily basis by Glacier under advice from experts at Milliman, one of the world’s largest risk management firms, and with marketing and systems support from Bermuda-based P2 International Ltd.

INVESTSA46

pRoDUCtsproDUctS

46

“glacier p2 strategies provides clients witH tHe peace oF mind to stay invested in tHe markets despite tHe volatility, as tHe strategies aim to limit large drops in tHe value oF tHe portFolio.”

FedGroup’s annual launch reveals refined product offering

FedGroup Financial Services embarked on a

nationwide road show last month, revealing a

refreshed product offering to the industry. In addition

to introducing the FedGroup Property Portfolio for

institutional investors and reintroducing FedGroup’s

Property Services, the group also launched tailored

individual investment options for its Participation

Bond product.

With more than 21 years’ experience and 6 000

investors, FedGroup has refined its Participation Bond

product options to offer more flexibility to investors.

“FedGroup’s products and services are designed to

remove the complexity typically associated with products

within the financial services industry. In a continued bid

to ensure innovation and simplicity, we refreshed our

Participation Bond product options,” said FedGroup

executive, Scott Field. FedGroup’s Participation Bond

product now includes a fixed option, which offers a

certainty of return, regardless of fluctuating market

conditions; and an investment option, which offers a

stable return and the flexibility of withdrawal. While the

fixed option is an investment fixed for five years at a fixed

rate, the investment option has a fluctuating market-

related rate that allows for withdrawals as desired. Both

product options allow for the monthly interest earned to

be paid out or reinvested.

“A Participation Bond quite simply presents an investor

with the certainty of capital preservation, coupled

with the consistency of interest. Our refreshed product

options were designed to allow investors to take

advantage of a secure investment in our Participation

Bond product based on their needs,” concluded Field.

47INVESTSA

Uk’s first double dip recession in 37 yearsBritain has entered into the first double-dip recession since 1975, after two quarters of negative growth. Economists had expected official data to show the economy grew by 0.1 per cent between January and March; however, the results showed a surprising 0.2 per cent fall followed by a 0.3 per cent reduction in GDP in the last three months of 2011. Prime Minister David Cameron claimed it would be “absolute folly” to borrow more money to try to get out of a debt crisis.

the time is now for SA to invest in Zimbabwe The South African Ambassador to Zimbabwe, Vusi Mavimbela, has urged South Africans to invest in Zimbabwe saying it is a “sleeping giant that is in the process of waking up”. According to Mavimbela, the Zimbabwean economy is growing at an average of nine per cent which is unheard of in many parts of the world.

Libya hopes for $1 trillion in foreign direct investmentLibya is expecting a cash injection of $1 trillion in foreign direct investment to rebuild its economy after the civil war. Ahmad Salem Al Koshly, Libya’s Minister of Economy, said that while Libya is currently faced with many challenges, foreign companies have already moved back to the country to resume outstanding projects.

china, Japan and South korea take action to safeguard financial marketsChina, Japan and South Korea have agreed to boost cross-investment in government bond markets, worth $15 trillion at the 12th Trilateral Finance Ministers’ and Central Bank Governors’ Meeting of China, Japan

and South Korea, recently held in Manila. The three powers agreed to promote trilateral currency swap arrangements in order to stabilise and safeguard their regional financial markets against the Eurozone crisis.

Spain is in recession Spain has hit a second recession in three years. The economy declined by 0.4 per cent in the first quarter of the year, this follows the 0.3 per cent decline of the last quarter of last year. Spain currently has a 24.4 per cent unemployment rate which came after the collapse of the lending property sector in 2008. The Spanish Government is considering helping banks, by allowing them to place bad debt into a government organised fund.

italy delays its plans to balance budget by 2013Italy will delay its plan to balance the budget in 2013 by twelve months, as a result of missing its budget deficit targets for 2012 and 2013. This is according to the draft economic and financial document (DEF) that showed that the economy is due to decline by 0.5 per cent in 2013 and 0.1 per cent GDP in 2014. DEF also revealed that public debts will reach a high of 120.3 per cent in 2012 before decreasing to 117.9 per cent in 2013.

cuba’s allies threaten to boycott future oAS summitsCuba’s Latin American and Caribbean allies have threatened to boycott Organisation of American States (OAS) summits should America and Canada continue to exclude them from future events. The United States and Canada have not invited Cuba to OAS summits since 1959 following Fidel

Castro’s revolution as they do not consider the Caribbean country to be a democracy. The Latin American and Caribbean nations condemned the “unjustified and unsustainable exclusion of Cuba” in a statement issued in Cartagena.

turkey gears up for influx of SyriansPrime Minister Recep Tayyip Erdogan, said that Turkey is considering options including a buffer zone as it prepares for an influx of Syrian refugees which would cost the country $150 million. To date, 25 000 Syrians have sought safety in the neighbouring country of Turkey as their infamous Syrian President Bashar al-Assad’s regime cracks down on protesters and armed rebels.

carlos Slim Helu the world’s richest man according to forbes magazine Carlos Slim has been announced as the world’s richest man by Forbes magazine. Though his fortune is down $5 billion compared to the previous year, he is still on top of the chart with a net worth of $69 billion. Bill Gates follows in second position with $61 billion and Warren Buffett in third position with net worth amounting to $44 billion.

olympics give Britain economy a boost Economists predict that the London Olympics will give Britain’s weak economy a short-term boost. However, it will fail to prevent a sharp slowdown and economic recovery this year. According to Samuel Tombs, an analyst at Capital Economics research group, most of the effect has already been experienced through increase in investments over the past five years. The British Government has also invested R116 billion (11.2 billion Euros) to stage the games since London was announced as the host city in 2005.

UK, SA, ZIMBABWE, LIBYA,CHINA, JAPAN, SOUTH KOREA, SPAIN, ITALY, CUBA, TURKEY

tHe WorLD

INVESTSA

The 100th anniversary of the Titanic’s sinking took place recently on 15 April. The historical tragedy, in which 1 522 people perished, has remained a powerful

part of our cultural history through films, books and television shows ever since its occurrence.

The demand to own a tangible piece of history has spurred on the growth in the Titanic memorabilia market. Simple items salvaged from the wreck have been auctioned over the years for large sums of money. “The market has grown from strength to strength and, in 2012 alone, numerous relics and artefacts were sold on auction,” said Paul Fraser of Paul Fraser Collectables.Here is a list of the five most expensive Titanic memorabilia items ever auctioned.

Master key for cabins e1–e42 – £84 000

First class steward of the Titanic, Edward Stone was responsible for cabins E1–E42. Sadly, he lost his life in the tragedy, but his memory lived on through artefacts recovered from his body and sent to his widow in Southampton, England. Amongst Stone’s collection of personal items, the master key for cabins E1–E42 was sold by auction house, Henry Aldridge and Son in October 2008 to US collector for a price of £84 000.

Last titanic lunch menu – £76 000

In April 2012, Henry Aldridge and Son sold the menu from the last lunch served on the Titanic. The menu illustrates the luxury of the cruise liner offering 40 different options for the sitting. The menu survived in the handbag of Ruth Dodge, a first class passenger and wife of prominent San Francisco banker, Dr Washington Dodge, who survived the tragedy with her son.Menus have proven to be highly popular among collectors, but what made this menu special was the fateful date, 14 April 1912, printed on it.

crow’s nest keys – £90 000

Henry Aldridge and Son sold a set of keys, which could have changed the course of history, on auction in 2007. These keys unlocked the crow’s nest locker, which contained a set of binoculars, but never made it onto the ship. Instead, it remained in the pocket of Second Officer David Blair who was excluded from the voyage at the last minute and had forgotten to hand it to his replacement. The result forced lookouts to scan for danger using the naked eye.

edmund Stone’s pocket watch – £94 000

This pocket watch captured a historic moment when its hands poignantly froze at 02:16; the exact moment Stone entered the freezing waters of the Atlantic to which he later succumbed. The watch was sold in October 2008 by Aldridge and Son for a record price of £94 000.

titanic Longitudinal ship plan – £220 000

The record for the most expensive piece of Titanic memorabilia is currently held by an almost 10-metre long hand-drawn plan of the ship used during the inquiry into its sinking. The plan, which was drawn up by the Naval Architects Department of the White Star Line and was described as the “Holy Grail of Titanic memorabilia”, was sold by Henry Aldridge and Son in May 2011 for a record price of £220 000.

AND NOW FOR SOMETHING coMpLeteLY Different

TiTanicmemorabilia sets sail for record prices

“The market has grown from strength

to strength and, in 2012 alone,

numerous relics and artefacts were sold

on auction,”

48

49INVESTSA

AND NOW FOR SOMETHING coMpLeteLY Different

Delicious food, brilliant art and a variation of cultural initiatives come together within a tranquil and refreshing ambiance at the

Beautifull Life Building on Bree Street.

Eating at Beautifull Foods is more than a breakfast or lunch experience. It is a jewel for refined tastes - a one-of-a-kind arts and culture development centre that combines sumptuous healthy foods in a creative and relaxed atmosphere where some of South Africa’s talented and emerging professional artists are able to display their finest works.

The bistro falls under the umbrella of the Youngblood Africa Arts & Culture Development centre, which also has its home in the 800sqm multilevel Beautifull Life Building. The concept is unique in that it gives resident and emerging artists exposure and an opportunity to sell direct to the public. It is a space where buyers, art enthusiasts, investors and the original artists can connect, or simply relax and enjoy art and devour the delicious food on offer.

Breakfast is uncomplicated and all produce is organic and free range. Muesli with seasonal fruit salad and plain yoghurt is the healthy option but it’s the poached egg on rye, with rocket, Franschhoek salmon trout and a fresh horseradish-dill crème fraiche that is a first choice.

Lunch offers a tasty quiche and salad of the day combo - there is also the Chef’s Soup for a winter warmer – but you’ll have to enquire with your waiter on the day as only the freshest produce is used. Pasta with rocket, goat’s cheese, cherry tomatoes, basil and garlic topped with olive oil is the gap

filler, while the Sandwiches of Love on either a ciabatta or rye get the taste buds going.

The health conscious will certainly opt for one of the ‘Happy Belly Salads’, although anyone could be tempted for Clara’s shrimp salad – spicy prawns served with avo, toasted sesame seeds and coriander. All salads can be supersized serving four people. A cake selection is also available for the sweet tooth or if you’re simply coming to select a new work of art try the Delux coffee, spiced tea, or a cinnamon milo while you ponder.

Every alternate Saturday, an Art-a-Fare features a new selection of art, ranging from paintings and sculptures to photography and colourful array of blown-glass, and so the eatery is constantly metamorphosing as new creations come and go and patrons and buyers come back for a new perspective. Contemporary design classics by Danish

designer Verner Panton’s, as well as imported Italian contract furniture can also be found here.

Youngblood funds a range of social cultural initiatives and all profits generated from sales and corporate events are fed back into their projects so that local artists and talented creatives are able to continue producing their work. Other projects they have funded include the Remix Dance Company, and more recently the ‘Flower of Shembe Operette’, which premiered at the Artscape.

Interested individuals and corporates can also become members and have the benefit of being invited to all Youngblood events and receive reduced fees for music concerts, performances and functions. The Beautifull Life Building is ideal for light business lunches, corporate meetings or a brainstorming session when creative ideas are called for.

Beautifull Food

LifeStYLe

VISIT THEM OR MAKE ENqUIRES AT:

Tel: 021 424 0074Website: www.ybafricanculture.com

tHeY SAiD...

“The sluggish pace of the recovery raises

concerns that a steady trickle of restrictive trade

measures could gradually undermine the benefits

of trade openness.” World Trade Organisation

director-general pascal Lamy, saying that world

trade will slow for a second year.

“Obama’s guards expelled in Colombia over

prostitution – shame the gringos think that Latin

America is a brothel and they act like it, too.”

Venezuelan political commentator, nicmer

evans, on the fact that US security personnel

were sent home over allegations of misconduct

in a hotel. A Colombian police source said

prostitutes were taken to their hotel.

“The economy is getting stronger. The recovery

is accelerating and the last thing we can afford

to do now is to go back to the same, worn-out,

tired, uninspired, don’t-work policies that got us

into this mess.” US President Barack obama

“If they do develop the institution, the World

Bank will want to be a partner with it, just

as we are with regional development banks,

NGOs, civil society groups and national

development banks.” World Bank

president robert Zoellick on the proposed

BRICS development bank.

“It is remarkable that six of the world’s 10

fastest-growing economies were African. In

eight of the past 10 years, Africa has grown

faster than East Asia.” President Jacob Zuma

talking at the 4th International Trade and

Investment Conference at Sun City.

“Remembering that I’ll be dead soon is the

most important tool I’ve ever encountered

to help the big choices in life.” Steve Jobs,

Apple founder.

“You move from political freedom to economic

freedom. Economic freedom should be the

centre of this centenary.” ANC treasurer

Matthews phosa warning of a North African-

style Arab Spring if the government does not

tackle rising unemployment amongst the youth.

“The omelette could be unscrambled, but it

would leave the central banks of the creditor

countries with large claims against the

central banks of the debtor countries, which

would be difficult to collect.” Billionaire

investor george Soros says if financial

markets are concerned other countries will

follow Germany’s Bundesbank in ‘guarding’

against the end of the Euro.

“There is still a lot of cash on the sidelines

looking for a pullback, and I suspect some

people over the weekend said, ‘Yeah, maybe

I’ll put some money in,’ and then you get

Ben Bernanke’s comments and that stoked

the fire.” Bob Doll, BlackRock’s vice-

chairman and global chief investment officer

in New York, commenting on the S&P 500

rebounding from its worst week in 2012.

“If the economy worsens more than expected,

it will be necessary to continue increasing

and improving capital as necessary in order

to have solid entities.” Spanish central

bank governor Miguel Angel fernandez

ordonez, on further recapitalising banks.

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

50

tHeY SAiD...

“The sluggish pace of the recovery raises

concerns that a steady trickle of restrictive trade

measures could gradually undermine the benefits

of trade openness.” World Trade Organisation

director-general pascal Lamy, saying that world

trade will slow for a second year.

“Obama’s guards expelled in Colombia over

prostitution – shame the gringos think that Latin

America is a brothel and they act like it, too.”

Venezuelan political commentator, nicmer

evans, on the fact that US security personnel

were sent home over allegations of misconduct

in a hotel. A Colombian police source said

prostitutes were taken to their hotel.

“The economy is getting stronger. The recovery

is accelerating and the last thing we can afford

to do now is to go back to the same, worn-out,

tired, uninspired, don’t-work policies that got us

into this mess.” US President Barack obama

“If they do develop the institution, the World

Bank will want to be a partner with it, just

as we are with regional development banks,

NGOs, civil society groups and national

development banks.” World Bank

president robert Zoellick on the proposed

BRICS development bank.

“It is remarkable that six of the world’s 10

fastest-growing economies were African. In

eight of the past 10 years, Africa has grown

faster than East Asia.” President Jacob Zuma

talking at the 4th International Trade and

Investment Conference at Sun City.

“Remembering that I’ll be dead soon is the

most important tool I’ve ever encountered

to help the big choices in life.” Steve Jobs,

Apple founder.

“You move from political freedom to economic

freedom. Economic freedom should be the

centre of this centenary.” ANC treasurer

Matthews phosa warning of a North African-

style Arab Spring if the government does not

tackle rising unemployment amongst the youth.

“The omelette could be unscrambled, but it

would leave the central banks of the creditor

countries with large claims against the

central banks of the debtor countries, which

would be difficult to collect.” Billionaire

investor george Soros says if financial

markets are concerned other countries will

follow Germany’s Bundesbank in ‘guarding’

against the end of the Euro.

“There is still a lot of cash on the sidelines

looking for a pullback, and I suspect some

people over the weekend said, ‘Yeah, maybe

I’ll put some money in,’ and then you get

Ben Bernanke’s comments and that stoked

the fire.” Bob Doll, BlackRock’s vice-

chairman and global chief investment officer

in New York, commenting on the S&P 500

rebounding from its worst week in 2012.

“If the economy worsens more than expected,

it will be necessary to continue increasing

and improving capital as necessary in order

to have solid entities.” Spanish central

bank governor Miguel Angel fernandez

ordonez, on further recapitalising banks.

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

50

69453 Investec SA 297X210.indd 1 2012/03/16 10:27 AM

INVESTSA FPI May 2012

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Transcript of INVESTSA FPI May 2012