To learn more about our philosophy based on consistency and how it can benefi t you, please speak to your fi nancial adviser or call us on 0860 105775

or visit www.prudential.co.za/our-funds

Source: Morningstar data for periods ending 30 June 2014, Multi-Asset High Equity fund category. Assets are managed by Prudential Investment Management (South Africa) (Pty) Ltd, which is an approved discretionary financial services provider #45199. Collective Investment Schemes (unit trusts) are generally medium-to long-term investments. The value of participatory interest (units) may go down as well as up. Past performance is not necessarily a guide to future performance. Unit trust prices are calculated on a net asset value basis, which is the total book value of all assets in the portfolio divided by the number of units in issue. Fluctuations or movements in exchange rates may also be the cause of the value of underlying international investments going up or down. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. Commissions and incentives may be paid and if so, would be included in the overall costs. Different classes of units apply to the Prudential Collective Investment Scheme Funds and are subject to different fees and charges. A detailed schedule of fees and charges and maximum commissions is available on request from the company. Forward pricing is used. All of the unit trusts may be capped at any time in order for them to be managed in accordance with their mandates.

Consistency is the only currency that matters.

CHOOSING A FUND MANAGER ISN’T EASY, BUT IT MAY HELP TO

KNOW THAT OUR BALANCED FUND IS A CONSISTENT,

TOP PERFORMER. The Prudential Balanced Fund continues to outperform 75% of

high equity funds over every period from 1-10 years.

Source: Morningstar

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It’S toUgh at thE top

REvISItIng anothER InvEStmEnt dEBatE:

UnIt tRUStS vS EqUIty InvEStmEnt InStRUmEntS

alExandER FoRBES BEnEFItS BaRomEtER 2014

ImpRovIng nEwS on thE gloBal EConomIC FRont

a talE oF two ElECtIonS

pRoFIlE: SEElan goBalSamy, CEo StanlIB

tEn StEpS to loCal REtIREmEnt REFoRm

thE ImpaCt oF REtIREmEnt REFoRm on

FInanCIal advISERS

a nEw look at mEmBER CommUnICatIon

SoCIally RESponSIBlE InvEStIng: aRE yoU SERvIng yoUR

ClIEntS’ IntEREStS FIRSt?

nEwS

CONTENTS

23

There are times, I suspect, when South Africans forget they are part of a much wider world. We think our big problems and little triumphs are somehow unique, not part of the ebb and flow of a much bigger system. Sadly, this type of thinking is limiting.

I attended an event in Durban a few weeks ago organised by Glacier, the Sanlam subsidiary specialising in high wealth clients, in association with iconic magazine Time and CNBC Africa, where I was pleasantly surprised.

The four delegates were an excellent choice of not only leading but also ‘different’ commentators: Jayendra Naidoo, former trade unionist, drafter of the country’s labour laws and presently the co-founder and chairman of the J&J Group; David Shapiro, the knowledgeable and charismatic director and deputy chairman at

Sasfin Securities; Alec Hogg, founder and publisher of BizNews who earlier made history when he founded, launched and ran Moneyweb; and Bronwyn Nielsen, senior anchor and executive director at CNBC Africa. Bronwyn was the moderator and fired lively, sometimes aggressive questions at the other three speakers, forcing them to carefully hedge their answers.

In addition to the quality of the speakers was the context for the debate. Principal topics were the effects of the strike action, a growing middle class, rising interest rates and the long term of the global economy. It could easily have veered towards the negative, but it didn’t – responses were upbeat and looking for the good in recent bad situations, and most importantly it was all set across the global backdrop.

These substantial issues in the global picture got me thinking and realising that it works both ways. For a long time now, the basic education system in South Africa has been appalling and the major reason for unemployment and crime. Recent noises from the government on plans to improve schooling and tighten up on matric give hope. But then I remembered reading somewhere in the past six months about how many pupils passing the demanding O- and A-levels in England were later found to have emerged semi-literate. This, in the home of Shakespeare and the English language!

But that’s the point. Our education system is bad, but it is also bad in other surprising places. Just keep it all global, the good and the bad.

Until our investors’ world comes around again,

Copyright COSA Communications Pty (Ltd) 2014, All rights reserved.Opinions expressed in this publication are those of the authors and do not necessarily reflect those of this journal, its editor or its publishers, COSA Communications Pty (Ltd). The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or products or the reliance of any information contained in this publication.

EditorShaun Harris | investsa@comms.co.za

Publisher Andy Mark

Managing editor Nicky Mark

Content editor & editorial enquiries Vivienne Fouché | vivienne@comms.co.za

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

the editor

Shaun Harris

From www.investsa.co.za

InvEStsa4

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InvEStsa6

By Marc Hasenfuss

By Shaun Harris

It’s tough at

TOPTHE

InvEStsa 7

Investment analysts, those intelligent and talented people who make numerous investment decisions on our behalf, attract among the highest salaries and

related financial incentives of all professions in South Africa. Note, not the highest: that’s to be found in associated fields like equity fund management and private equity. But remuneration is generally a great deal, and investment analysts deserve it. It’s a tough route getting to a recognised analyst position in a top firm. And whilst there, it’s a demanding, competitive job. The burn-out rate is high. Not many in the profession last for more than four years. “I was an analyst for about four years. It’s a very competitive industry; it takes three to four years to get rated,” says Mark Bryson, who recently moved to the sales side with award-winning independent firm, Avior Research. Like many of his colleagues, Mark received a ranking in the latest Financial Mail Ranking the Analysts 2014, scoring sixth place for research on financial and industrial small and mid-cap companies.

Small caps is a demanding field, with many companies under-researched and more difficult to analyse. But that’s what Bryson enjoyed. “You can’t get it right every time. I would try and find something to point out to the fund manager, who might not have seen it. That’s the beauty, the treasure with small caps,” he says.

According to the Pay Scale website, the average pay for an investment analyst is R243 844 a year. Depending on the rating, skill and success rate of an analyst, this amount can increase dramatically. “A skill

Qualifications are difficult to achieve, although that might just be the easiest

part of being an investment analyst

in financial analysis is associated with high pay for the job. Most people move on to other jobs if they have more than 10 years’ experience,” says Pay Scale. It adds that an investment analyst’s annual pay can reach R460 000.

Investment analysts tend not to stay in the industry for long. The same website says that 63 per cent of analysts are in the position for one to four years. From five to nine years the percentage drops down to 18 per cent, and after 10 years it is only one per cent.

However, there are a few veteran analysts who stay with the job throughout their careers. Being an investment analyst is all they want to do and the experience they build up over the years is highly valued.

Associated job salaries tend to be higher. For instance, the average salary of a chartered accountant (a qualification many investment analysts have) ranges between R480 000 to R980 000 annually, a portfolio manager (which many investment analysts become) R480 000 to R980 000, and a private equity associate, R720 000 to R920 000 a year.

Holders of a Chartered Financial Analyst (CFA) qualification, generally considered the standard qualification for an investment analyst, advance individuals further up the pay scale. Salary Comparison reports that practising CFAs in South Africa could earn a total pay package of between R91 916 to R587 228 (analysts in the US earn an average of US$75 000). “Those who have one to four years’ experience reported wages of R180 000 to R400 000 a year,” Salary Comparison says.

Analysts and fund managers are often encouraged to invest in the funds they

InvEStsa8

analyse or run. Many investors feel more comfortable knowing that the person making the investment decisions has money riding alongside theirs. But this can be a double-edged sword.

There are those analysts and fund managers who sometimes take a short-term view, trying to bump up returns before a particular reporting period and when annual bonuses are under review. This can conflict with the longer-term view of an investor.

Top analysts can reward investors well. One is Anthony Clark with Vunani Securities, who annually tips five shares he believes will outperform the market over the calendar year. In 2012, his selections returned 28.1 per cent; last year, 39.6 per cent. For interested investors, his five stock picks for 2014 are M&S Holdings, Consolidated Infrastructure Group, Torre Holdings, Hudaco and ConvergeNet.

A rewarding fund manager to follow is John Biccard, who runs the Investec Value Fund. As a value investor his fund will sometimes underperform the market, but when it comes through the results are spectacular. After a quiet period his fund has returned around 38 per cent over the past year, comfortably ahead of the market.

Often, investment analysts decide to follow the profession during their time at tertiary institutions. “It was after I completed my PhD in Econometrix at the University of Pretoria that I decided to be a financial analyst,” says award winning analyst Elna Moolman of Macquarie First South. She was ranked top domestic economic trends analyst in the recent Financial Mail Ranking the Analysts 2013 awards. But Moolman points out that

her role is different from a company analyst, with her skills more specialised and looking at macro trends.

For Mark Bryson, it was while at university that the idea of being an analyst first came to light. “I was exposed to people who had been, or were in, the industry. While studying for my CFA, I decided to go into investment analysis.” He adds that completing the CFA Charter can be demanding, even lonely. “It’s not so much that it’s difficult, but it’s about the hours you have to put in. You have to sacrifice a lot,” he says. The position entails dedicated hours and a great deal of pressure. How do analysts manage to balance this with lifestyle and home life commitments? “The job does involve very, very long hours and a very competitive environment. But one advantage is that it can be flexible. You sometimes work 14 hours a day, but you don’t have to do all the work at the office. So I can also work from home,” says Moolman. “You’ve got to get life time. It’s an industry requiring long-term commitments, the first couple of years you tend to get stuck in the system. But then you start to plan around it and get back to having a life at home as well,” says Bryson. The academic qualifications needed to be an investment analyst are demanding, as are the skills and experience learned on the job. But what role does a good mentor play? “A good mentorship is not absolutely necessary but I think it’s a big advantage,” says Moolman. Bryson believes a new analyst should have a mentor. “The learning curve is steep. I had a couple of mentors.” Fees paid by investors are a controversial topic, and in many instances have been decreasing over the years. A good analyst, however, is certainly worth the money.

InvEStsa 9

Allan Gray Proprietary Limited is an authorised financial services provider.

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peace of mind you’ll have when you eventually

stop working.

Call Allan Gray on 0860 000 654 or your

financial adviser, or visit www.allangray.co.za

InvEStsa10

By Marc Hasenfuss

InvEStsa

Revisiting another investment debate:

With the JSE persistently testing new highs in recent months, it’s probably as good a time as ever to re-ignite the ‘eternal’

debate around the best-managed diversified investment vehicle for retail

shareholders.

Outside the increasingly popular SATRIX funds – which are really passive index linked funds – there are two options for an investor

who might not be comfortable backing individual stocks. These are unit trusts, which are open-ended funds that invest mainly in stocks listed on the JSE and other international bourses, and equity investment instruments (EII), which are closed-end investment companies listed on the JSE and which hold shares in listed and unlisted companies.

Both unit trusts and equity investment instruments offer investors a diversified portfolio

of shares, sometimes mixed with bonds, derivatives and cash holdings. Unit trusts accrue ongoing management fees (and in some cases performance fees), while an equity investment instrument investor pays upfront brokerage when acquiring shares.

The fee structure has always been the great differentiator, but there are other key differences in weighing up which vehicle is best-suited to drive long-term returns.

Currently, there are many more unit trusts available to investors than there are shares on the JSE, which testifies to this vehicle’s status as

the default investment option for retail investors.

In May this year, the Association for Savings and Investments in South Africa (ASISA) disclosed that at the end of the first quarter of 2014, the local unit trust sector – or collective investment schemes as they are officially known

unit trusts vs EII

(Equity Investment Instruments)

InvEStsa 11

– managed assets of R1.54 trillion and offered investors over 1 000 portfolios (which is more than double the number of companies listed on the JSE).

The attraction of unit trusts is not only that portfolios offer investors a well-diversified spread of shares, property counters and other investment instruments, but also that there is, these days, a wide choice of specialist funds.

While the unit trust industry in South Africa was founded on the class ‘general equity’ fund, in recent years funds have catered for the specific needs or risk profile of investors, offering

anything from resources funds to small cap funds, financial services funds, property funds and flexible funds, as well as a variety of options for investing internationally.

ASISA’s latest report shows that unit trust investors have lately developed a strong penchant for lower risk multi-asset portfolios that aim at stable performance in volatile times, rather than pushing for razzle-dazzle returns.

In the first quarter of 2014, multi-asset portfolios recorded net inflows of R23 billion. That means that in the year to end March 2014, R114 billion of the total R158 billion

net inflows were channelled into the South African multi-asset category, which allows investors to achieve diversification across asset classes within one fund as expert portfolio managers determine the appropriate exposure to the different asset classes. At the same time, the equity category suffered net outflows and the South African money market category saw a marginal net inflow of only R125 million.

Clearly the trend of seeking shelter in multi-asset portfolios highlights one of the key strengths of unit trusts in offering investors diversification and flexibility. Even within specialist funds – like property or resources – there is some scope

InvEStsa12

to shuffle the respective fund investments to accommodate changing trends. A property portfolio manager may be overweight in commercial property to counter a perceived softness in the retail or industrial property market, or a resources fund manager may find it more prudent to hold diversified mining conglomerates than to tilt at a specific position in gold, platinum or coal.

Equity investment instruments, conversely, do not offer the same levels of diversification; nor can they be considered anywhere near as flexible as unit trusts.

But this also holds advantages. Equity investment instruments can back fewer investments for longer, which might explain the enormous long-term success notched up by JSE investment trust companies like Remgro, PSG Group, Brait and Hosken Consolidated Investments. Smaller – and perhaps lesser known equity investment instrument counters – like Trematon Capital Investments, Grand Parade Investments, Brimstone Investment Corporation and Sabvest – have also notched up enviable long-term returns.

Essentially, these JSE-listed counters have been able to back certain investments to the hilt, with no pressure to exit these investments once a certain level of return is reached.

Unit trust companies may well have been able to select shares like Capitec Bank, Tsogo Sun, Life Health, Curro Holdings or Distell, but the holding in these companies would be restricted to being part of a larger portfolio. In other words, if a particular unit trusts holding in Capitec grew to more than a certain percentage of the portfolio, then a fund manager – in terms of keeping to prudential guidelines – might have to sell down the shareholding to retain portfolio balance.

Investment trusts, on the other hand, can retain as large a holding as they can accumulate for as long as they like. And that has paid off in droves for HCI with Tsogo Sun, Remgro with Medi-Clinic, PSG with Capitec and Curro as well as Brimstone with Life Health. Of course, a major advantage cited for investors for unit trust acolytes is that the open-ended nature allows new money to flow into funds.

This, naturally, is fantastic for small investors who might not have enough capital on hand to make a meaningful investment on the JSE. With a convenient monthly debit order – perhaps as little as R500 a month (in some instances even less) – investors can gradually feed capital into a diversified investment vehicle managed by a professional asset manager.

The complicated issue of market timing is negated in terms of risk, since the investor – as long as they adhere to a long-term horizon – should average out on the price of units by buying in both bull and bear periods in the market.

But there are unintended consequences. The open-end structure of a unit trust sometimes means investors can keep pouring money

into the fund (unless a fund is capped to new business). This can leave a fund manager in a bit of predicament in terms of where to invest all the client flows – especially when there is not much value to be found on the JSE, as might be the case at present.

The beauty of equity investment instruments is that these vehicles often offer investors a chance to acquire a portfolio of assets at a discount. Discounts traditionally range between 12 and 25 per cent, but have sometimes stretched to over 30 per cent.

Much depends on the track record of an equity investment instrument. Brimstone, which has unlocked value and been a source of dividends for shareholders, trades at a narrower discount to Sekunjalo, which has done neither. While discounts on an enduring equity investment instrument like Remgro and exciting contenders like HCI and PSG have narrowed, there is even an argument around whether the respected management teams running these funds are not worth a premium price.

Investors in equity investment instruments also gain access to some attractive unlisted assets, which unit trusts – due to their market specific mandate – cannot access. HCI owns attractive unlisted coal mining assets, Remgro has exposure to unlisted Unilever SA, PSG offers promising unlisted retailer Kaap Agri, Brimstone owns insurance company Lion of Africa and Sekunjalo is the controlling shareholder of export-driven Premier Fishing. The respective equity investment instruments are often the only way for investors to access these unlisted companies.

The bottom line is that it’s a tough call for retail investors. In terms of performance – and without hauling out official statistics – it seems safe to presume the long-term performance of

South Africa’s most enduring equity investment instrument, Remgro, comfortably surpasses any of the longer serving general equity unit trusts – and by quite a margin. In fact, it would be surprising if any unit trust fund could beat the returns of HCI over 15 years or PSG over 20 years.

That said, a PSG or HCI does not come along every day, nor is there a reasonable chance that these companies could emulate the astounding historic returns in the next decade (although, personally, I would not bet my house against it). With discounts narrowed on the top JSE equity investment instrument counters, perhaps now is the time for retail investors to plum for unit trusts. Selection, though, is critical, and difficult with so many funds to choose from.

In the last year, global funds (with top returns ranging from 56 to 75 per cent) were the obvious winners, but over five years property-orientated unit trusts (which endured a tougher time in 2013) were the winners, with top returns ranging from 15 to 17.5 per cent on an annualised basis.

Over 1§0 years the picture is even more interesting, with a better spread of fund classes included in the top performers – including ‘industrial’, ‘top 20’ and ‘value’ funds. Interestingly, the top two performers with annualised returns of around 25 per cent were ‘small cap’ funds.

Picking the future winners over the medium and longer term from over 1 000 funds won’t be easy in the current market volatility, and shows why so many are delving into the relative safety of multi-asset funds. Hedging for safety is prudent, but the brave investor will probably be rewarded. Resources and mining unit trusts anyone?

InvEStsa 17

InvEStsa14

Alternativeinvestments

As a result, we are now having to hunt in more obscure places to find cheap assets, and are aware that returns from current levels are likely

to be less than spectacular.

Stocks in Europe offered extraordinary value a few years ago when the region was going through economic difficulties, and sentiment was negative. Once investors began to realise that Europe was not about to implode, stocks rerated tremendously.

This rerating drove the fund’s move out of several core holdings. Shares like French retailer Carrefour, as well as Greece’s Titan Cement and Hellenic Exchanges, reacted strongly to the faintest glimmer of improved business conditions. One of our top sales during the last months of 2013 was Portuguese retailer Sonae, a share we only started acquiring late in 2012. That tells

Strong European returns

The tremendous rerating of European stocks during 2013 meant value investors such as RECM saw big moves in many of our core holdings.

you something about the speed with which certain shares moved in Europe.

Despite these sales, the fund continues to hold a larger exposure to Europe and Japan than the popular international benchmark indexes. We consequently have a smaller exposure to the US. We also disagree with the market’s current high regard for industrial shares – we prefer stocks in the materials sector.

RECM’s focus is on identifying high-quality companies trading at a deep discount to their intrinsic value. While the company’s research team continues to unearth new ideas around the world, they’re finding that they have to look harder and in more obscure places to find cheap assets than was the case a year or two ago. They are still, however, finding some valuable opportunities in unpopular sectors.

One of the biggest purchases over the past few months has been Japanese oil and gas producer, Inpex. Investors are shunning the oil and gas sector – they don’t like the capital intensity of the industry. Inpex stands out as the cheapest of its peer group, particularly given the rising project costs in the massive Ichty’s offshore project in Australia. Based on the work we’ve done, we think Inpex shows great value at these levels and we’re excited about the long-term opportunity it offers.

Another recent purchase is UK food retailer, WM Morrisons Supermarkets. Morrisons has its predominant exposure in the north of the country where disposable income is under pressure. Hard discounters such as Lidl and Aldi have taken market share as a result.

Morrisons has reinvested aggressively in pricing points and has partnered with Ocado, one of the largest online grocery retailers in the UK. This partnership gives Morrisons access to best in class global online retailing expertise, and the stock is trading at a significant discount to fair value, which makes it a compelling investment at these prices.

European stocks still feature strongly in the portfolio, with European steel manufacturer ArcelorMittal the largest current holding. However, with many of the major holdings having run so strongly in 2013, the cash holdings in the fund have increased to over 20 per cent.

Despite the fund’s strong performance, we still urge investors to temper their return expectations. It is very rare that the intrinsic value of companies will increase at the rate that global share prices increased in 2013, so it should not be surprising that the fund’s cash holding increased substantially. Long-term returns from these levels should be solid, but we’ll be surprised if they’re spectacular.

unlikely tocontinue

wilhelm hertzog, portfolio manager global fund, RECm

InvEStsa 23

InvEStsa16

Assetmanagement

mike wilmot, head of investments, nedbank private wealth

Market and investment developments over the past decade highlight Nedbank Private Wealth’s investment approach, which

has led to both equity and asset allocation performance with distinction. This coincides with Private Wealth celebrating four market-leading performance successes over 10 years at end-April 2014, including two leaders in the big-name Property and Balanced or SA multi-asset medium equity fund categories and an additional two for our Small and Mid-cap Equity Fund and our Defensive Fund of Funds.

While 10 years of investment success is a great outcome to celebrate, in the world of investing, process trumps outcome in the long run. We believe that our investment professionals and our private client process demonstrate this success.

Starting with ‘the good’, all asset classes delivered positive growth over 10 years, with

Morningstar Rankings

At the end of April 2014, the following funds were placed first in their respective categories over 10 years:

•Nedgroup Investment Private Wealth Property Equity Fund

•Nedgroup Investment Private Wealth Small and Mid-cap Equity Fund

•Nedgroup Investment Private Wealth Balanced Fund of Funds

•Nedgroup Investment Private Wealth Defensive Fund of Funds

The classic spaghetti western, The Good, the Bad and the Ugly, set the scene for the recent Nedbank Private Wealth investment roadshow. The phrase has come to refer to upsides, downsides and the parts that could or should have been done better. We thought this was an interesting framework for reflecting on the past 10 years of investing.

risk assets, namely property and equity, shooting the lights out. Our house view as expressed in our equity unit trust, the Nedgroup Investment Private Wealth Core Equity Fund, delivered material outperformance, beating over 100 funds in its category to become the number one South African general equity unit trust over one year, at end-May 2013, and number one over three years at end-March 2014. This Private Wealth Fund delivered top decile performance over one, three, five and seven years, and top quartile performance over one, three, five, seven and 10 years at end-April 2014.

Examples of Nedbank Private Wealth’s stock-picking success include blue chips such as SAB, Naspers, British American Tobacco and Richemont – all core holdings in Nedbank Private Wealth’s client portfolios – and investment in a few phenomenal growth counters such as Aspen, Mr Price and Grindrod.

We manage our equity portfolio on

principles of low turnover, long-term holdings in quality companies (where quality refers to capable management teams), strong balance sheets, clear earnings visibility and a bias towards progressive dividend payouts. We view dividends as a key contributor to investment returns and a defensive underpin to our portfolios.

Further, asset allocation is critical to long-term investment success. A key outcome of our asset allocation process was to find a high and growing income stream to meet our clients’ objectives, resulting in an overweight property position, a contrarian position much of the time. This approach has met our clients’ income requirements and added to outperformance from an asset allocation perspective.

‘Bad outcomes’ that we noted in the 10-year period included the relative decline of the mining sector and how picking the flavour of the day led to poor outcomes over the period, illustrated by comparing the relative performance of the Findi with resources over the 10 years. ‘Ugly outcomes’ – things that we can do better in South Africa – definitely reside in the areas of unemployment and inequality, which are two hard, structural nuts that we are yet to crack. While we cannot control the currency or gold price, a stock price or the market, we can control our investment process and adapt it where necessary. This is key to long-term investment success.

10years

of investment performancewith distinction

InvEStsa 17

HOT

SA RESERvE BAnk AdjuStS REPuRChASE RAtE

In an effort to continue on its gradual normalisation path, the South African Reserve Bank (SARB) raised the benchmark repurchase rate by 25 basis points to 5.75 per cent in July. This follows an interest rate hike of 50 basis points in January this year, which then took the rate to 5.5 per cent. The last time that the repurchase rate was adjusted by less than 50 basis points was over a decade ago in October 2000. The SARB has cautioned that the country is currently in a rate hiking cycle.

BiLLionS oF doLLARS in invEStMEntS FoR AFRiCA

The Obama administration committed to $14 billion in investments from US businesses into Africa at the US Africa Leaders Summit, which was held to discuss ways to boost economic partnerships between the US and the African continent. US companies at the summit expressed their eagerness to seize opportunities in the region, which is home to six of the world’s 10 fastest growing economies.

SA dEStinAtion FoR REnEwABLE EnERgy invEStMEnt

South Africa is becoming a leader in renewable energy, and within the space of three years the REIPPP (renewable energy independent power producer procurement programme) model is fast developing into a new industry sector. Proof of this is United States company Jinko Solar, which will open its R80 million, 120 MW solar photovoltaic (PV) module production facility in Cape Town.

Sideways

SA’S unEMPLoyMEnt RAtE REAChES RECoRd highS

The number of unemployed persons in South Africa has increased by 0.3 per cent to 25.5 per cent between the first and second quarters of 2014. According to Statistics South Africa, the number of unemployed persons increased by 87 000 over the second quarter of 2014 to 5.2 million, the highest level since the inception of the Quarterly Labour Force Survey (QLFS) in 2008.

The Kagiso purchasing managers index (PMI) has revealed that activity in the South African manufacturing sector fell for the fourth consecutive month in July to 45.9 index points in July, and therefore remains below the desired 50 level which indicates expansion in the industry. This drop is as a result of a strike in the metals and engineering industry, which restricted production.

NOTBarometer

The energy and oil developments in South Africa are putting the country on the radar of potential investors within the sector and will lead to the country receiving its share of attention from global oil companies. This is according to DHL, which says the potential of the region will lead to investment into the country and create opportunities for small and medium enterprises to provide products and services required to support oil and gas operations locally.

SA oiL And EnERgy SECtoR FuELLing gLoBAL invEStoR gRowth

wAStEFuL ExPEndituRE with LoCAL govERnMEnt inCREASES

South African local government audit results have revealed that wasteful expenditure within local government has increased by 31 per cent for the 2012/2013 year, compared to the previous year. The report shows that the R815 million’s worth of funds was spent in vain, and could have been avoided if the relevant municipality had taken reasonable care.

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Sanelisiwe gantsho,economist, liberty Investments

Economiccommentary

The first event that raised eyebrows and started to change investment perceptions was Nigeria’s GDP rebasing. These figures immediately

cast a spotlight on South Africa’s competitiveness as the reigning investment hub on the African continent.

For so long, post-1994 at least, South Africa has held the title as the investment gateway into Africa. Where the figures are concerned, the country can continue to hold this title. GDP per capita, which is in an indicator of individual consumer buying power, is sitting at about $3 020 in Nigeria, compared to $6 089 in South Africa. A win, one might say, but only by a slim margin for South Africa. A more sophisticated economy and affiliations such as the BRICS grouping does not alleviate South Africa’s economic challenges, which continue to chip away at its investment potential. On-going labour unrest has become worse in 2014.

The second event that has certainly deterred investment prospects for South Africa was the five-month mining strike in the platinum belt. South Africa’s economy is historically built on the mining and manufacturing sectors. The country accounts for over 80 per cent of the world’s platinum group metal reserves.

A considerable period of no production eroded the country’s international investment confidence where mining was concerned. International and domestic contracts could not be honoured, the currency took a nose dive that frequently threatened the R11/US$ mark and further dampened an already slowing

This year has seen South Africa having to defend its undisputed investment attractiveness and economic standing on the African continent.

economy. Post the five-month strike and in the midst of a rising interest rate environment, South Africa finds itself in a position to attract trade and capital inflows although it is also faced with restoring its international investor confidence. The subsequent Amplats mine sell-off proposal of its labour-intensive mines is a step in the right direction but at the unfortunate trade-off of job losses for the needy.

The third event, which has been an ongoing theme in 2014, has been the global emerging markets currency sell-off, which unfortunately does not discount South Africa. 23 January was dubbed the single biggest sell off in emerging market currencies since 2009 in a single day. The Reserve Bank subsequently hiked interest rates in January, the first time in almost six years.

The fourth positive event worth mentioning is the conclusion of the longest strike in South African history, with its damning consequences, including large scale job losses. The result is fewer jobs available in the market than existed before the strike, and an increasing drive to mechanise mines. The only win is increased wages over the next couple of years but not at the cost of sizeable trade-offs, namely first quarter GDP contraction and a slowing manufacturing sector. A possible further contraction will put the country into a recession, an undesirable consideration for any potential international investor.

The granular statistic releases that reveal South Africa’s ability to meet external financial obligations are important signals to investors and the current account is always

of great interest to them. South Africa’s Q1 current account deficit improved to -4.5 per cent of GDP from -5.1 per cent of GDP in Q4 2013, partly attributed to a welcomed increase in tourism inflows. It is also important how well South Africa evolves into a net exporting economy in channelling the most productive investments into labour-absorbing activities. It is concerning that South Africa continues to underperform in exports, given the fact that a depreciating currency and an improving global economy is supposed to support domestic exports. The value of imports rose in Q1 up to 9.0 q/q to almost the highest level of import intensity, largely due to higher oil imports.

On the economic front, the year thus far has been tougher than most. South Africa’s efficacy as an emerging market investment destination has been questioned.

South Africa’s investment landscape

A round-up of this year’s economic events affecting

10 11

HOW TO USE THIS BOOk

pArt 3: seCtor CAse stuDies

Part 3 provides an in-depth examination of ten different sectors and their employee benefits. When using Part 3 it is important to remember that both the classification of businesses to sectors and the classification of issues to different priority levels are not exact sciences. The characteristics of groups within a sector are also important in determining their needs and how best to meet them. For this reason, stakeholders should regard the Alexander Forbes Benefits Barometer as a rough guide to the burning issues in the industries.

– HIGH PRIORITy – These issues are

significant because they will have a large impact if they happen, are very likely to happen or both.

– MEDIUM PRIORITy – These issues are important

but are less likely to happen, will have a smaller impact than high priority issues or both.

– LOW PRIORITy – These issues are unlikely to

happen or will have a small impact or both.

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how to interpret the AlexAnder Forbes beneFits bArometer

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Event

When the publication was first released in 2013, its conclusion was that South Africans were failing to achieve the necessary

outcomes from their retirement savings because of the fragmented nature of how this vital social protection was structured. The 2013 edition argued that what was needed was a more effective discourse between the stakeholders, namely employers, policymakers, employees (through their trustee and union representatives) and financial service companies, to understand how gaps in the system could be best addressed. This has also been a primary focus for the National Treasury.

“Retirement funds may well be one of the most effective means for stimulating savings in South Africa, but the harsh reality is that retirement savings is simply not top-of-mind for most individuals, or their employers,” says Alexander Forbes Group CEO, Edward Kieswetter.

Benefits Barometer 2014The Benefits Barometer publication is Alexander Forbes’s thought leadership report. Its primary focus is on savings and employee benefits for South Africans.

Launching the 2014 edition of Benefits Barometer, Kieswetter argues, “If we are going to get individuals to engage in their retirement savings, we’re going to have to place as much emphasis on helping them with their entire financial journey as we are on that point of actual retirement. And if we are going to get employers to engage, we need to provide more than just a compelling economic case; we need to make it easy for them to make a critical component of their employee wellness initiatives.”

Anne Cabot-Alletzhauser, head of the Alexander Forbes Research Institute, comments, “There is an interesting debate here, and it’s a debate that is being held about retirement savings globally. On the one hand, regulatory interventions and effective defaults could be introduced that simply ‘sleepwalk’ individuals to retirement. But as Benefits Barometer 2014 highlights, to do so would clash with the urgent need to get individuals to engage with their broader financial well-being.”

She continues, “Our research suggests that if South Africa is going to address the triple demands of engagement, financial literacy and social protection, we need to translate the current employee benefits model into something far more targeted to individual needs. If we can design cost-effective benefit structures that address the financial concerns of individuals both today, tomorrow and in the distant future when they retire, then perhaps we can begin a partnership with them that gradually enhances their financial decision-making at a very individual level. In a country where the vast majority of the population is unlikely to interact with a financial adviser, developing this level of dialogue is key.”

Benefits Barometer 2014 identifies the following critical areas for debate within the industry:

Alexander Forbes

•Current conventions around risk benefit choice need to be substantially revamped to meet members’ needs more directly.

• Targets for retirement funding need to be reconsidered if we are going to make them meaningful to individual circumstances, as well as transferable if members move to new funds when they change jobs.

•Defaults will need to become ‘smarter’ and more responsive to different member circumstances if we want members not to opt out.

• Employers need to revisit their HR policies to close any gaps that might exist with the employee benefits conditions of their retirement funds.

•Costs demand a complete rethink in the context of the value chain.

•Costs and complexity need solutions – tools that can untangle the uncertainty.

•Communication and financial education initiatives will demand a complete rethink given the very low success rate to date.

•We need to assess whether our members are winning and we need to assess whether our decisions as fiduciaries are adding or subtracting value from their lives.

In Benefits Barometer 2014, the link between employee benefits and broader social protection is also explored. What this illuminates is that fixing employee benefits for individuals not only improves their well-being, but also makes a key contribution to the country’s development.

Kieswetter concludes, “The challenge, though, is that improving outcomes for individuals requires both improvements within the employee benefits framework and beyond. Simply preparing an individual for retirement is not enough. We need to engage with their entire journey and help them to achieve financial health, both today and in the future.”

xxxx xxxx xxxxx xxxxxx

CHAPTER 1: THE INTER-DEPENDENCIES

PART 1

Chapter 1

22

23

improvement in operating income of 19.2%7. In contrast, organisations with poor employee engagement levels saw a decline in operating income of 32.7%7. So there is a clear relationship between employee engagement and financial results.

The precise role of employee benefits in stimulating employee engagement is difficult to quantify but is relatively intuitive. In an Alexander forbes Survey8 all respondentsstated that the wrong employee benefits could lead to disengagement. When asked if employee benefits were important for employee engagement, 84% of the employers responded ‘yes’ with just 13% stating that other aspects of the work environment were more important and 3% of employers stating that they were uncertain.

Physical, mental and financial health and organisational performanceHolistic employee benefits programmes that are structured to address physical, mental and financial health can offer employers a significant return on their investment. For every rand invested, returns can range from R4.50 to R23.009. This return is delivered through improved financial health and savings on absenteeism, retraining costs and the cost of insured benefits.

THE PRINCIPLES FOR EMPLOYEE BENEFITS STRuCTuRINgClearly, offering the ‘right’ employee benefits package is important. This involves finding the right mix of pay, employee benefits and other benefits like training. These three components form the total rewards system.

There are five factors that can assist in determining employee benefits structures that deliver value for employers and employees:• integration• education • focus on needs • organisational value consistency • Regular review.

IntegrationStatistics suggest that, to date, South African employers have not been successful at offering a full spectrum of wellness benefits, let alone integrating them. Although 92% of the employers we surveyed agreed that looking after the financial, physical and mental wellness of their employees would boost productivity, only 28% of them incorporated all three into their wellness programmes10.

7 Towers Perrin – ISR (2006) 8 Future of Employee Benefits Employer Online Survey 2012 9 Data from Alexander Forbes Health Management Services for a large client 10 hot Topics Summit employer Survey 2012

Wellness programmes and initiatives to boost employee engagement may yield mediocre results unless education and communication strategies support them.

Source: Hot Topics Summit Employer Survey 2012

INTEgRATION OF ELEMENTS OF WELLNESS PROgRAMMESn ONLY PHYSICAL AND MENTAL WELLNESSn PHYSICAL, MENTAL AND FINANCIAL WELLNESSn NOTHING OFFEREDn only finAnCiAl WellneSS

28% 19% 2%51%

A page from the book illustrates the use of strong graphics in a clean design

Full house at the Gauteng launch of Benefits Barometer 2014

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anthony ginsberg, md, ginsglobal Index Funds ltd

Global economiccommentary

US economic growth continues to show healthy improvements, with the June labour report showing almost 290 000 new jobs and a

drop in the unemployment rate to 6.1 per cent, representing a six-year low. Perhaps not surprisingly, the S&P 500 – at the time of writing – was poised to hit 2 000, a threefold increase from its lows less than six years ago. The Dow already broke through the 17 000 psychological barrier in mid-July.

Corporations are increasingly hiring staff again, despite some weaker than expected GDP numbers posted for the first quarter.

The Producer Price Index has been rising the past few months although showed only a small 1.8 per cent year-on-year increase for June. Commodity prices have been sinking in recent weeks, with the CRB Index of 19 actively traded commodities falling by almost six per cent since its mid-June high and WTI oil reaching below $100/barrel. Lower commodity prices clearly point towards a reduction in inflationary pressures. Gasoline prices are largely flat at around $4/gallon – the same level for the past four years.

Improving news on the

Earnings growth in the US continues to reinforce the US equity bull market. Approximately 80 per cent of US second quarter corporate earnings surprised on the upside, beating analysts’ estimates.

Consequently, it is not surprising that the Federal Reserve feels no compulsion to consider raising interest rates any time soon. In fact, Fed chair, Janet Yellen, suggests that only late in 2015 will the Fed have cause to begin raising rates.

US small caps currently trade at almost twice the PE levels of US large caps and as such are relatively expensive. Similarly US retailers and consumer discretionary trade at a 25 per cent premium to the broader market and should be under-weighted. While US valuations are relatively high compared with the past two years, with PEs averaging around 19 on the S&P 500, this is not seen as excessive for such a low interest rate environment. Meanwhile, exceedingly low 10-year US Treasury yields below 2.5 per cent continue to surprise investors. This has helped fuel the US real estate recovery. By the end of June, the Dow Jones US REIT Index was up an impressive 18.2 per cent.

non-uS markets

Recent geopolitical tensions have not led to much volatility in equity markets, despite

Middle East tensions rising and the downing of the Malaysian plane over Ukraine. Volatility has been suppressed partly due to the Fed’s unusually accommodative monetary policy and the benign credit cycle in the US. Thirty-year fixed mortgage rates still hover at historic lows between four and 4.5 per cent.

Emerging markets as an overall group remain out of favour, although India, South Africa and Mexico have posted recent highs too. The recent 7.5 per cent second quarter GDP growth figures reported for China and other improved economic data has helped stimulate positive sentiment again for emerging markets.

In the Eurozone, recent economic data has disappointed, including declines in industrial production in Germany, France and Italy, as well as a decline in German factory orders and a fall in German and French business confidence. Spain’s manufacturing PMI rose to the highest level since the global financial crisis, Spanish employment has gained nearly two per cent from a year ago, and Spanish home prices appear to have stabilised in recent months. Within the composite PMI for the euro zone, new orders rose to the highest level in three years, and the fall in prices was the smallest in two years in July.

We remain bullish on European equities. Lending is bottoming out, while much-needed reforms are finally beginning in France and Italy, and the ECB has committed to doing ‘whatever it takes’, including pursuing outright bond purchases, if economic growth slips too far. Profit margins in the Eurozone remain below the 2007 peak, and if the economy and corporate sales experience sustained improvement, earnings growth could outpace economic growth.

global economic front

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Industryassociations

godfrey nti, CEo,FpI

The Road Accident Fund provides compulsory cover to all users of South African roads, both citizens and foreigners, against injuries sustained,

or deaths arising from motor vehicle accidents, within the borders of South Africa. However, these lump sum settlements are often made to claimants who are not financially literate enough to manage their finances in such a way that it sustains their family’s livelihood after the accident, particularly as some of the road accident victims may be unable to work again.

A 2013 report recently released by the International Transport Forum shows that South Africa has one of the highest levels of annual road accidents among 36 countries surveyed around the globe. This results in an annual cost of R300 billion to the South African economy in accident financial support claims, yet many of the recipients do not benefit from the payouts properly, due to their low levels of financial literacy. Godfrey Nti, FPI CEO, clarifies, “The partnership between FPI and the Road Accident Fund provides financial literacy tools to RAF claimants through the FPI MYMONEY123™ programme. This is a financial education community outreach programme that aims to teach South Africans about the basics of personal financial planning to empower them to make sound financial decisions. In addition, the

collaborations aim to financially empower claimantsFinancial Planning Institute (FPI) and the Road Accident Fund (RAF) have signed a memorandum of understanding aimed at providing financial education to RAF claimants in a bid to protect them from mishandling their finances, in the event of a payout from the fund.

memorandum of understanding provides both organisations with a chance to explore collaborative financial education and advocacy platforms on a national scale.”

Nti said FPI was proud to be associated with the Road Accident Fund (RAF) through its commitment to financially empower road accident claimants.

“Their commitment is closely aligned with our vision as an Institute, which is to provide financial planning for all South Africans through our CERTIFIED FINANCIAL PLANNER® professionals. With increasing amounts of debt to manage, South Africans need to be more proactive in seeking various saving mechanisms to help them use their savings in a wise manner that helps them to ease and manage their debt burdens.” The Reserve Bank recently released statistics showing that household debt as a percentage of disposable income was at 76 per cent in 2013. Although this has eased somewhat from a high of 80 per cent reached in late 2008, the figure is still of grave concern and underpins once again the urgent need to get South Africa’s citizens saving rather than increasing their indebtedness levels.

“Statistics like these underpin the importance of saving and financial planning and should encourage the financial services industry

to spearhead various saving initiatives. We need to make saving a lifestyle all year round,” said Nti.

Eugene Watson, CEO of the RAF, added, “We believed it was fitting to collaborate with an independent body that had the ability to provide objective financial planning tools that could empower our claimants to make wiser and sustainable financial decisions, for the well-being of their families.”

It is hoped that the partnership will help to create more financially educated citizens, showcasing the importance of planning in a country where financial literacy levels remain disconcertingly low and household debt- to-income ratios remain correspondingly undesirably high.

FPI and Road Accident Fund

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Investment

Chris hart, chief strategist, Investment Solutions

India also had an election during May, and in sharp contrast to South Africa’s election, it did have a strong influence on its financial markets. It was a

landmark election that may well have global ramifications. This was the first election in decades in which the electorate voted for growth and prosperity rather than the usual welfare and handouts. The election has ushered in a government that has pledged to roll out the red carpet for investors, rather than the red tape. It has committed to repealing 100 red-tape hindrances in 100 days. The promise is an unlikely one, but this is a government strongly motivated to raise the Indian economic growth rate and, in so doing, reduce poverty.

The difference in market performance between South Africa and India has been stark. In the three months since May 2014, the JSE has

A tale

The political environment can affect investment outcomes, but it is too often an over-emphasised factor. In South Africa’s case, the effect of elections on market volatility is virtually zero, with the election in May for the National Assembly a case in point. In the short term, politics do not have a market effect in South Africa.

continued its upward bullish trend that has taken the All Share Index over 52 000. The JSE gained five per cent over this period, while the BSE in India gained 15 per cent, with a distinct boost coming from the election outcome. Over the same period, the Rand weakened marginally by two per cent, while the Indian Rupee remained unchanged, expanding the US Dollar-denominated relative performance between the two stock markets by a further two percentage points. Even in fixed income, the Indian bond market has enjoyed an edge over South Africa.

While three months is an insufficient period to gauge a long-term investment effect, the initial signs are encouraging for India. It comes at a time when the Chinese economy is displaying signs of slowing. The credit excesses that have built up in China over the past few years and the resultant asset

bubbles mean its economy may have gone ex-growth. India, on the other hand, shows minimal signs of over-investment. Over the past three decades since the 1991 crisis and reforms, Indian growth has been infrastructure-constrained. The government is also constrained, given a limited effective tax base.

Further reforms in India will help to open up the economy to private-sector investment, which has been restricted by government involvement in the past. Essentially, investment will be ‘crowded in’ rather than ‘crowded out’ as legacy policy is reformed. Lack of infrastructure can become a catalyst for growth through a build programme, and India has the savings rate to support a high level of investment.

The political changes mean the country may be poised to take over the economic leadership of the emerging-market world from China. Although the Indian economy is much smaller than China’s, the next decade may see it catch up. And less central planning means capital will be better allocated than it has been in China. While China’s past growth has been spectacular, it has not been rewarding for investors as its stock market has languished. A sustained growth spurt in India may well prove more rewarding to the investor if it is on the back of more efficient capital allocation.

of two elections

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Chris wood, head of equity at prudential Investment managers

While some may believe that taking on much higher risk in an equity portfolio improves the chances of outperforming a

certain benchmark, statistics show that this is not necessarily the case: outperformance is not more common among equity portfolios positioned with higher risk. In fact, South African performance data over the past three years show that higher-risk portfolios have a greater probability of underperforming than outperforming their benchmarks.

However, generating above-benchmark returns does require taking on appropriate risk, which involves carefully deciding how to position a portfolio with overweight and underweight holdings versus a benchmark so that it does beat the benchmark. This is called ‘taking an active position’.

The man on the street may be tempted into thinking that portfolio managers who take large positions in companies versus a benchmark have a better chance of beating that benchmark, because of their expertise in selectively choosing stocks and constructing a portfolio that should outperform. However, many of these high-conviction bets resulting in highly concentrated portfolios are risky, often proving unsuccessful for various unforeseen reasons.

There are several ways to measure risk in a portfolio, two of which are active share and tracking error. Active share measures the total difference between the weightings of companies in a portfolio compared to their weightings in its benchmark at a point in time. A zero per cent active share would mean that the portfolio is weighted exactly like its benchmark (such as an index tracking fund) while a 100 per cent active share would mean that the portfolio has no holdings in common with the benchmark.

Tracking error, meanwhile, shows the difference in returns between a portfolio and its benchmark. It measures the degree of variation

doesn’t improve chances of outperforming

of the active returns of the portfolio over time. Active return is the difference between the portfolio return and the benchmark return. A portfolio with zero per cent tracking error would match the index return perfectly, while a high tracking error would mean the portfolio’s returns are very different from its benchmark.

The graph shows that, among domestic equity unit trust funds in South Africa, there are large differences in active share and active return. Importantly, simply increasing the active share of a fund does not improve the probability of outperformance. Rather, as active share increases, so does the dispersion of returns so that active return may be either more positive or more negative. In other words, taking more risk or bigger bets in a portfolio does not guarantee greater returns.

In fact, the graph shows that among high active share funds, more tend to underperform (their active returns fall below the zero per cent line in the graph) than outperform. Using tracking error as the risk measure instead of active share, the same trend again holds true. Among the higher tracking error funds there

are more below the zero per cent active return line than above the line.

So in conclusion, the risk/return trade-off tells us that increased risk provides for the possibility of higher returns, but there are no guarantees. While higher risk means higher potential returns, it also means higher potential losses. Successfully maintaining the correct risk/return balance in a portfolio is a continual challenge for all fund managers, and what makes a manager consistent.

higher risk Taking

Investmentstrategy

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convergence of great minds

the roundtable

Shawn Stockigt BCom (Law)

Portfolio manager at Momentum Asset Management

Shawn Stockigt joined the Momentum Asset Management Unconstrained Strategies team as a portfolio manager in October 2012. He joined us from Stanlib, where he was head of the Value Equity Franchise and responsible for the Value Unit Trust, Shari’ah Unit Trust and the Small-Cap Fund, in addition to managing institutional mandates.

Sam Houlie CA (SA), CFA

Head of the Unconstrained Strategies at Momentum Asset Management

Sam Houlie is head of the Unconstrained Strategies team at Momentum Asset Management and brings 18 years of domestic and global investment experience to the company. Houlie was at Investec Asset Management until September 2011, where he held the positions of director, head of South African equities and portfolio manager in the Global Contrarian team.

Value investing is usually defined as buying shares that are trading on low price to earnings or any other low price/denominator. Although a simplistic definition of value investing, if applied consistently, the approach can deliver superior returns over time. The roundtable discussion took place against the recent context of the collapse of African Bank Investments Limited (Abil) in early August. Both of the Momentum value funds under discussion, the Momentum Value Fund and the Momentum Small/Mid-Cap Fund, were invested in the company. Commenting on the Abil collapse, Sam Houlie opened the presentation by saying, “We are coming to you at a time when Abil has just been placed in curatorship and, as a consequence, shareholders and subordinated debt holders lost all their capital. Abil was a significant holding in our funds, and the loss has dragged down short-term returns, even though the rest of the portfolio has done very well. We continue to hold our Abil shares (we did not sell any stock following the trading update and leading up to the curatorship announcement).

“It is clear that the fund has lagged the market recently due to Abil being our biggest detractor. We are invested alongside other investors in the fund and the compelling value offered by our remaining holdings should enable the fund to re-establish its record of out-performing the market.”

Shawn Stockigt added, “The same process and philosophy was applied here as with previous

Key speakers at the event

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Momentum AssetManagement

Value investing

good decisions. You seldom find cheap stocks and good news at the same time, and bargains are usually found where share prices have been under pressure, and investors are most negative. In the long term, value investing generates superior returns with lower risk of capital loss. Abil has been a disappointing outcome in the short term, but we are very excited about the long-term return potential of the remaining portfolio holdings, which are diverse and robust, and we know we will recover from this position going forward.” Houlie commented, “The empirical evidence supporting value investing is very strong. It works in the long run because you pay a cheap price and it covers you for the uncertainties that may arise in any business or industry and we will maintain our value investing discipline because of that.” The main focus of the Momentum Value Fund is active stock selection based on fundamental research and a distinctive value, contrarian approach. It seeks to outperform the broader equity market over a full stock market cycle (measured from a peak to peak or trough to trough, and typically lasting between five and seven years).

The Momentum Small/Mid-Cap Fund aims to achieve above-average medium to long-term real returns. The universe of stocks is generally (but not limited to) companies listed on the JSE, with a focus on companies that have a reasonable level of tradability and are under-researched by the broader market.

The main focus of the fund is active stock selection based on fundamental research with a value/contrarian bias. Top-down strategy is important, but secondary to active stock picking.

Houlie told delegates, “We are living in an extraordinary time in investment markets: more than 70 per cent of the SWIX no longer meets our absolute value criteria and, in addition, it’s unprecedented not to have had a market correction for six years. The South African market is extended in valuation metrics, with very high price/earnings multiples – future returns have to be lower.Due to our different investment approach, if there is a market correction, we expect our funds to react very differently - they are not index funds and are very different to other funds on the market – we ‘zig’ when others ‘zag’! The contrarian aspect of our style rests on our ‘variant perception framework’, which is designed to isolate the fundamental research supporting our decision to challenge the view discounted by the market.” Houlie concluded by again referencing the Momentum Value Fund: “In summary, the rest of the portfolio that we have is attractive and will generate returns sufficient to recover the position that we had in Abil, and more – we definitely do not look like the market or its peers. Our money is in this fund, and we believe that our differentiation will eventually pay off over the long term. Unlike the debt investors, we will be able to recover because of the underlying holdings.”

Momentum value FundThe fund’s objective is to maximise returns over the FTSE/JSE SWIX index over time, offering the potential for long-term capital growth.

key fund facts:

• Benchmark: FTSE/JSE Shareholder Weighted Index (SWIX)

• Peer group: SA – Equity - General• Fund managers: Sam Houlie and

Shawn Stockigt• Fund size: R317 million• Annual management fee: 1.25 per

cent plus VAT• Performance fee: (0 to 1 per cent)

+ VAT• tER: 1.49 per cent• offshore: 25 per cent and up to

5 per cent in Africa• Risk level: High• inception date: 1 July 1998

Momentum Small/Mid-Cap FundThis fund seeks to maximise returns over time through investment in small and mid-cap shares primarily listed on the FTSE/JSE. Stocks held in the portfolio will fall outside the ALSI 40 and seek to capture the bias for small and mid-cap stocks to outperform over time.

key fund facts:

• Benchmark: FTSE/JSE Shareholder Weighted Index (SWIX)

• Peer group: SA – Equity – Small and Mid-Cap

• Fund managers: Sam Houlie and Shawn Stockigt

• Fund size: R699 million• Annual management fee: 1.50 per

cent plus VAT• Performance fee: (0 to 1 per cent)

+ VAT• tER: 1.76 per cent• offshore: 25 per cent and up to

5 per cent in Africa• Risk level: High • inception date: 1 May 2000

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david o’leary, CFa, mBa, director of fund research, South africa, morningstar South africa

Investors around the globe enjoyed strong returns as economic indicators in both the US and China showed improvements during the quarter. South African equities

continued to pick up steam in the second quarter of 2014 as the FTSE/JSE All Share Index returned 7.2 per cent after posting a 4.3 per cent return in the first quarter. Year-to-date the benchmark is up 11.8 per cent. The second quarter return was good enough to beat the local currency total returns of the S&P 500 (5.2 per cent), FTSE 100 (3.2 per cent) and the Nikkei 225 (2.4 per cent).

Category and Markets Returns

name 2nd Quarter

year to

date

1 year

3 year Annualised

5 year Annualised

10 year Annualised

global RE general 8.8 14.0 20.0 24.4 22.8 12.2

South African EQ industrial 8.3 9.9 30.0 26.7 25.9 23.4

South African EQ Financial 7.2 13.7 32.5 23.7 22.8 20.0

South African EQ Mid/Small Cap 6.2 6.9 21.2 19.6 20.9 19.2

South African EQ Large Cap 5.8 11.0 31.8 19.2 20.1 20.0

South African EQ general 5.5 9.8 28.6 17.4 18.6 18.9

global EQ general 5.0 5.9 26.7 26.4 19.3 11.2

global MA high Equity 4.6 5.0 22.9 24.9 17.8 11.1

South African RE general 4.6 5.6 7.5 16.7 18.3 20.1

Regional EQ general 4.4 5.0 25.2 20.7 15.2 9.7

global MA Flexible 4.4 5.4 23.1 23.8 15.3 10.3

wwide MA Flexi22ble 4.3 5.3 20.8 19.9 16.4 14.5

South African MA Flexible 4.2 6.4 20.0 15.3 15.1 15.8

South African MA high Equity 4.2 6.6 19.5 15.0 14.2 14.7

South African MA Medium Equity 3.9 6.0 16.8 13.9 13.4 13.1

South African MA Low Equity 3.2 4.7 12.3 11.5 10.7 10.7

South African EQ Resources 3.0 13.3 36.1 3.8 10.3 16.7

global MA Medium Equity 3.0 3.1 19.0 21.2 13.0 9.8

global MA Low Equity 2.8 3.5 14.5 19.7 11.2 9.1

global iB variable term 2.8 4.4 11.8 18.5 10.8 9.9

South African iB variable term 2.8 3.7 5.9 8.5 9.3 9.2

South African iB Short term 1.6 2.9 5.8 6.2 6.7 7.8

South African iB Money Market 1.0 2.3 4.9 5.2 5.8 7.3

global iB Short term 0.7 1.4 9.1 14.6 6.6 6.3

Regional iB Short term 0.5 0.8 10.2 15.6 6.3 6.7

Gains in the South African equity market drove many ASISA unit trust categories to positive returns. Generally speaking, those categories with higher domestic equity exposure performed the best. Domestic equity categories took five of the six top spots on the performance charts in the second quarter. Leading the pack among these five domestic equity categories were the South African Equity Industrials and South African Equity Financials categories, posting 8.3 per cent and 7.2 per cent returns respectively. However, the best performing category for the

quarter was the Global Real Estate General category. ASISA multi-asset categories with high equity exposure also performed reasonably well. The Global Multi-Asset High Equity and South African Multi-Asset High Equity categories returned 4.6 per cent and 4.2 per cent respectively.

More muted returns from fixed income markets weighed on the performance of the multi-asset and fixed income categories. The fixed income benchmark Beassa ALBI returned 2.5 per cent during the quarter, contributing to the modest 3.2 per cent return for the South African Multi-Asset Low Equity category. Meanwhile, the South African Interest-Bearing Variable Term category outperformed the ALBI benchmark with its 2.8 per cent return.

The rand has continued to be volatile but ended the quarter off less than two per cent versus the US Dollar. The rand depreciated by a similar margin against the yen and dropped just over three per cent versus the pound. Meanwhile, it was flat versus the euro. In recent years the rand’s dramatic depreciation has been a major contributor to local investor returns from off-shore funds. So far in 2014, however, the rand has levelled off and only marginally contributed to South African investor returns on off-shore funds.

South African equitiesnear the top of the packin a strong second quarter for global equity markets

Morningstar

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Offshoreinvesting

alex Funk, head of asset consulting, gCI wealth

In fact, there has been such a large mismatch between our local economy and the stock market that if the above questions have not been raised in your client

discussions, they soon will be.

The continued flow of foreign capital to local markets has pressured the JSE’s boiling point to over 52 000 points, when most expectations were that the market would never hit 50 000 in the foreseeable future. But just as every racehorse has its day, so will the bullish nature of the local bourse finish its run. With continued local economic pressure through ongoing wage strikes, rising inflation and rising unemployment figures, there is no better time than now to diversify your client portfolios with offshore exposure.

The recent emergence of foreign markets from

local and offshore investments

The past year was an interesting period for financial markets and the relevant participants. Portfolio managers and financial advisers alike have continually asked the prevailing question of the stock market ‘correction’, while clients praise the returns of their investment portfolio.

the dark clouds of the sub-prime and euro debt crisis provides local investors with an opportunity to share in the prosperity. The US has shown improved economic data in the form of falling unemployment figures, rising business and consumer confidence and increased home sales indicators while in the Far East we have witnessed increased export figures through continued government support in the form of tax cuts, reduced fiscal spending and infrastructure development projects. The EU area has also brought its chips to the table through radical monetary policy actions to encourage banks to increase credit lending and in turn stimulate the European economies.

Given the facts, we may note that foreign stock markets have seen the same rally over the past financial year as the local market. While assessing the data of improving offshore

Time to diversify your clients’ portfolios by mixing

local

investing

offshoreinvesting

economies, it is possible to justify continued returns in these markets. However, back home in sunny South Africa our local economy is riddled with poor economic circumstances.

Unfortunately, there are only two alternatives for the large disparity in our stock market returns and economic growth. These are a large boost in local economic data (for example falling inflation, rising GDP and reduced wage strikes) or the correction of stock markets to bring stock prices more in line with company earnings. I think the latter is more probable and so the time for portfolio rebalancing has come for investors who are fully exposed to local market returns.

When considering your next asset allocation mix of your client portfolios, bear in mind that spreading portfolio returns to alternate markets may be the best financial advice for the coming year to ensure your clients’ investment returns are maintained for another market cycle. Choosing where offshore to invest and how to do due diligence on offshore managers is the subject of another discussion.

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what is it about your job that most excites you as you come to work every day?

The opportunity to make a difference to the lives of our customers is what drives and motivates me. We exist to create wealth for our customers, and we are so privileged to be entrusted with building their legacies. We are passionate about investing, and we are equally passionate about our customers.

I am very fortunate to have joined STANLIB at a time when the investment team was stable and committed to delivering on the investment promise to our customers. We believe in investment excellence and making a difference in people’s lives. We are so privileged to be managing our customers’ hard-earned money. We must continue to deliver on our promise of investment excellence, and we remain focused and passionate about what we do.

We are an industry stalwart in the fixed income, listed property and equity space, and we are setting our sights on attracting assets in the alternative space. Our alternative offering has expanded into direct property, infrastructure, passives and private equity. We see a major opportunity in Africa and have ceased to be a South African company with an African presence, but rather an African company domiciled in South Africa.

what would you describe as your major challenges in your role as StAnLiB CEo?

A challenge we collectively share in the industry is turning the tide on South Africa’s low savings rate. It is our duty to actively encourage and enable ordinary people to save and invest to secure their financial futures.

A key priority is providing service excellence in a world where customers’ needs are constantly evolving. I am passionate about ensuring that our customers are at the heart of everything we do at STANLIB. Our service also needs to be excellent. We focus our attention on understanding and delivering to our customer needs.

what do you regard as your greatest business success to date?

Every day presents opportunities to be successful, and we are successful at STANLIB every time we deliver on investment and service excellence.

I take great pride in my appointment as

STANLIB CEO, and feel a responsibility to our over 400 000 customers whose money we manage across eight African countries. As for our over 700 staff members, I feel a duty as their leader to create an environment that unlocks their potential and guides them in their respective career journeys to become leaders in their own right.

…and your greatest personal success to date?

I am the proud father of two beautiful children – an 11-year-old son, Joshua, and a 7-year-old daughter, Amy. I treasure my family and the precious time I spend with them.

Every day affords me the opportunity to learn and develop. I have been blessed with so many opportunities to further my skills, not only in South Africa but internationally as well. My hunger for knowledge, personal and professional development will never end.

your advice to retirement fund members in these interesting investment times?

Stay focused on your long-term goals and remain committed. Take a long-term approach to investing your retirement savings. Partner with good quality managers who are single-minded about investing and have a focused approach. Accept that no investment style will do well in all cycles, and avoid the temptation to chase the latest trend or pick the hottest stock. It all starts with a focused and disciplined plan.

if you had R100 000 to invest (excluding through StAnLiB products), what would you do with it?

I believe education is one of the best investments one can make – the returns on your investment are infinite. As a parent, the best gift I can give my children is an education that will open doors for them and set them up for life. I am also a big believer in making provision for a comfortable retirement.

how do you strike a balance between your personal life and your work schedule?

This is really tough to do. I enjoy what I do at work. It is my passion. This results in me putting in large amounts of discretionary effort. Focusing on being efficient and effective at work allows me to carefully guard family time. I try to avoid spending time on other activities outside family, personal and business.

I take my responsibilities very seriously, especially as a father, husband and head of a leading asset manager.

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Profile

SeelanGobalsamyCEO STANLIB

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Practice management

how would you describe your business model?

The business model can be summarised as an independent, fully comprehensive financial advisory suite of products and services delivered by a competent national advisory infrastructure. The value proposition has been designed to cater to advisers across South Africa, who have a passion for providing a best-of-breed solution to clients. We have no preferential or market share agreements with any financial services providers and generically provide access to almost all large, established product providers across the range of financial products and services.

A product committee ensures that an appropriate level of due diligence is completed before any new products are sold through our advisory network. An investment committee makes sure our investment solutions are

practice management formula

Peter Hewett, CFP®, founder of Efficient Advise practice, was awarded the 2014 FPI Financial Planner of the Year title. INVESTSA chatted to him to find out more about what makes him – and his business – tick.

continually reviewed. Our advisers thus have access to products, services and solutions that have been qualitatively pre-assessed, enabling them to focus on building long-term, mutually beneficial client relationships and the associated provision of comprehensive, specialist financial planning advice.

how did your business model evolve over time?

The business was originally established through the acquisition and rebranding of a small financial advisory practice in Cape Town, which consisted of an adviser and an administrative support structure. The initial expansion entailed the recruitment of advisers and the opening of branches in all of the key metropolitan areas, which ultimately enabled the creation of a management infrastructure. This enhanced infrastructure enabled expansion into non-metropolitan, outlying areas.

The ongoing recruitment of advisers and the acquisition of advisory practices has enabled us to grow into a meaningful, independent, FPI Accredited Professional Practice with over 12 000 clients, more than R9 billion in assets under advice, 81 advisers nationally and a total staff complement of 139 people. We have recently developed an officially accredited Continuous Professional Development Programme, covering all FSB licence categories, and are currently in discussions with the Inseta regarding the development of various financial advisory developmental programmes.

how important are your human capital policies in your company’s vision?

Human capital is invaluable and, simply, what a business is built from. Our focus is on finding and recruiting honest, hard-working, ethical and entrepreneurially-minded individuals who aspire to building a sustainable financial advisory practice within an enabling environment, with the support of a highly regarded brand and an exceptional group support infrastructure. At a group level, we have recently introduced a ‘Group Culture Campaign’ to ensure that our employees understand the culture we are trying to engender within the business.

what is the role of technology in running your practice?

The implementation of a proprietary Client Relationship Management and Financial Needs Analysis system was crucial in the establishment of the advisory practice. Our proprietary software is likely to be commercialised in the near future. We have also implemented an outsourced commission management system, Pastel Evolution, various fund and equity market assessment programmes and an in-house client reporting system. We are currently compiling a business plan for the enhancement and integration of a number of our systems to enable a more seamless adviser and client experience.

how would you sum up the key differentiators in your FPi Award entry that allowed you to be a winner?

I believe our overall approach to financial planning was the key differentiator. Our fully comprehensive financial plan, guided by our FuturesightTM financial needs analysis tool, together with the comprehensive set of financial solutions that we offer to accommodate our clients’ financial needs and thereafter the rigid and structured review process that is followed to ensure that our clients’ goals and objectives are achieved, ensures that our clients truly encounter an efficient experience. The overall practice management and client management methodology is being re-enforced through a formal development programme known as ‘The Efficient Experience’.

A winning

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mark thompson, CEo, Southern Charter

Regulatorydevelopment

South Africa needs to implement retirement reform suited to the model, infrastructure and capabilities of the South African financial services industry.

A developed first world financial model does not fit our world. Our situation is more aligned to the Chilean experience, where the introduction of ‘personal pension plans’ triggered economic growth and the creation of many jobs.

We believe there is an opportunity to build a significantly larger, successful, market-related financial services industry, and to reduce both transaction costs and fees. By implementing certain financial services reforms and harnessing the corresponding employment opportunities created, there is also an opportunity to double the number of workers saving for retirement and significantly increase the investment savings pool and the country’s GDP.

ten point plan to build a better retirement for all:

the naming convention: Retirement annuities should be renamed ‘personal

pension plans’ and pension and provident funds should be renamed ‘company pension plans’. Simplifying the terminology will increase members’ understanding and their motivation to take responsibility for their personal retirement plans.

tax incentives: Tax incentives should be consistent, trusted and harmonised

as planned, except that we believe capping the retirement deductions is misguided, as the targeted tax-paying members are already paying the top tax bills and this may disincentivise future retirement savings. This may also prejudice the new-found success of a previously disadvantaged group of black members who have not had the opportunity to build significant funds over a relatively short business lifetime.

introduce compulsory contributions: A target should be set for all tax payers to

be contributing at least nine per cent of their taxable income into retirement savings. This could be monitored on submission of their tax returns or SITE returns over a nine-year period, starting at one per cent per annum and increasing annually.

Regulation 28 compliance should apply to all investment aspects of the retirement

fund industry.

Ten steps to

1

investment options: All members should have access to all the available investment

options. The default option should be cost-efficient lifecycle-staged portfolios. Options should be growth-orientated, balanced and defensive – no advisers required. It should be their choice if members wish to choose their portfolio of shares or unit trusts, elect to guarantee a portion of their income or wish to use an adviser.

Limit options at withdrawal: Research shows that 90 per cent of members who

withdraw before retirement do not preserve their retirement funds. With immediate effect, when a member leaves a pension or provident fund, those funds should be transferred directly to that member’s personal pension plan and should only be accessible at age 55, as with RAs.

income withdrawal before retirement: In the case of retrenchment, members

should be able to access their funds on the same basis as if they were retiring, for example a maximum of one-third cash with two-thirds as an annuity. Doing away with preservation funds would simplify the retirement funds business and save costs.

income options at retirement: Applicable to pension and provident funds and

retirement annuities, up to one-third may be withdrawn in cash with the two-thirds balance being retained in your personal pension plan, from which your income is withdrawn. A transfer to an annuity would then fall away. In this way, doing away with annuities would save both fees and transaction costs.

income conditions in a personal pension plan at retirement:

•Maintain Regulation 28 compliance. •Maintain the retirees’ life stage risk-profiled

default portfolio strategy, giving them the best opportunity to beat inflation and providing them with a real income.

• Allow retirees to purchase a guaranteed annuity within their personal pension plan at the appropriate investment time.

•Do away with the minimum income withdrawal, leaving members the option to draw an income only when they wanted to.

• Set the maximum drawdown at CPI +seven per cent, with a caveat that a drawdown would never be allowed to reduce a member’s capital to a level less than seven percent, which would provide the equivalent of the government welfare grant for retired citizens. A real inflation-protected income is the solution.

national treasury RSA Retail Bond Funding: If the National Treasury

intends to use the retail market to fund infrastructure, they should consider obtaining FSB approval and becoming a licensed financial services provider, so that we as advisers can legally support their efforts to raise capital. The National Treasury should consider registering a unit trust fund that held only National Treasury Bonds – an RSA Retail Bond Fund.

local retirement reform

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on financial advisers

retirement reform

The impact of

Retirementfund consultants

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Many of the National Treasury’s retirement reform proposals are likely to impact on independent financial advisers. At first glance, compulsory retirement fund membership, compulsory

preservation and default annuities may even appear to be detrimental, but opportunities do exist. In the long run, reforms

are good for financial advisers as well.

Compulsory membership doesn’t preclude the need for retirement planning

One of the reform proposals speaks to compulsory membership of pension funds. You need not be concerned that compulsory membership will mean less business in terms of individual funding solutions. In practice, clients need more than just product advice; they need a solid financial plan, encouragement and help in addressing the gaps preventing them from achieving their goals.

Until most South Africans begin saving when they start working, and never cash in their savings along the way, the money saved in an employer’s fund won’t be enough to retire on. Even when the system and investor behaviour improves, many clients probably won’t want all their savings tied up in a compulsory scheme and will need advice on what products to use.

Advice to small businesses

If compulsory membership comes into play, advising small to medium-sized businesses on how to set up compulsory retirement savings solutions for their employees presents opportunity. This is the chance to extend your product offering and grow your client base.

Individual retirement annuities managed on a group basis offer an excellent choice for employers looking to give their employees control over their retirement savings. Individuals become members of the retirement annuity fund in their own right. Employees may also need guidance on the best underlying unit trusts for their age and circumstances.

Compulsory preservation opens up long-term opportunities

Another proposal speaks to enhanced preservation, which will remove options, and potentially, the need for advice, for people changing jobs. However, over the long term, more investors will reach retirement age with more capital, which means a greater need for good, independent advice and the ability to afford it.

default annuities present financial planning opportunities

The Treasury’s proposals envisage trustees playing a more prominent role in assisting retirement fund members in the transition from working and contributing to a retirement fund, to being retired and earning an income – from a default annuity.

It is not yet clear exactly what the obligations on trustees will be. But whether they merely offer a default annuity product at retirement, or go further and offer a more comprehensive service, individual members will need targeted advice when it comes to assessing if the default option is suitable for them, and in making individual member choice around underlying investments (if the default product calls for it).

Encourage clients to take a long-term view

Few of the proposals are yet finalised; these are still discussion documents. The environment is slowly changing, but it is unclear when proposals will be signed into law. The problem is that today’s good advice, based on the facts at hand, may change tomorrow.

For example, the recent increase in the amount that can be withdrawn from a

retirement fund tax-free (from R315 000 to R500 000) took many financial advisers, clients and industry players by surprise. Clients who applied for a withdrawal shortly before the budget speech and received a tax directive are still subject to the previous tax-free limit.

Probably the most sensible approach, for now, is to communicate with your clients and encourage a long-term view of their retirement savings, to avoid reputational risks associated with being caught off guard.

Create a compelling value proposition

Financial advisers help their clients make sense of complexity and products available, and in so doing better equip them to match an investment to their needs, and how to react when things change. Most importantly, they help their clients manage themselves with discipline.

Richard Carter, head of product development,

allan gray

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Retirementfund consultants

anne Cabot-alletzhauser, head of research, alexander Forbes research & product development

The danger of an environment where regulators impose minimum reporting standards on member communication is that it ends up being written to

protect the communicator, not the individuals for whom the communication is intended. Lax governance practices brought this all upon us, so now the challenge is to determine how to best balance the two: ticking the compliance boxes and making sure members are adequately informed.

The best communication programmes go out of their way to translate extremely complex concepts into simple and engaging explanations. Plain language, generous use of vibrant colours and white space, cartoons, and even animated video clips are all part of the battery of tools contemporary communication programmes use. But where are we in measuring whether these communications are actually resulting in members making better decisions?

We can measure whether a member has received a communication. We can measure whether they have read or watched the communication. But, have we assessed whether the communication was comprehensive enough and engaging enough to prompt the right behaviour from members?

The research available is not encouraging. A 2003 study by Bernheim and Garret concluded that programmes that rely on print media, like hard copy newsletters and leaflets with plan descriptions, have no effect on pension participation or contributions. In truth, individuals don’t give much thought to their pension funds at the best of times.

communication how do we break the spell?

How do we break away from old templates, new tick-boxes and formulaic communication policies that do little to encourage members to become engaged? How do trustees, umbrella fund management committees and service providers fulfil their fiduciary responsibilities to communicate and report to members in a way that truly improves their understanding of:

•What they are exposed to or invested in?•How to make meaningful choices about

these benefit options or investments.•How they are progressing over time to meet

any target.•What they could potentially do to improve

their lot.

Over the last 10 to 15 years, there has been a revolution in thinking about how individuals process and manage financial decisions. This knowledge has huge implications for how we need to present important information, how we offer choice, how we frame decisions, and how we talk to beneficiaries about such massively complex topics as retirement savings and employee benefits. And yet, very little has changed about the way we communicate these complexities to employees.

Conclusion

Regulatory directives on what needs to be covered in a proper communication may address concerns that investors may not be adequately informed – but that issue pales in comparison to the issue of whether communications to members help them make meaningful decisions. Unfortunately, many

boards exhaust the time and resources they have available to them in focusing on the regulatory requirements first and foremost. Members will only value their benefits if they understand the effect these benefits will have on their lives. Clear communication is essential, even if it is a challenge to implement. Furthermore, it’s in the interest of an employer to ensure that members do, in fact, see the value in their benefits.

Perhaps the real opportunity we are missing is to measure properly whether our communications actually result in the right behaviours and decisions from fund members.

The exercise has two essential requirements:

• That we clearly identify any ‘calls to action’ to members.

• That we measure whether members took action and, if so, was it the right action for the circumstances.

This is an opportunity that we are only just beginning to undertake.

A new look at

member

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Retirementinvesting

Steven nathan, chief executive officer of 10x Investments

The socially responsible investing industry typically focuses on three issues: the environment, social justice and corporate governance, usually

referred to as ‘ESG’. Legally, however, the first duty of a retirement fund is to its members, to act in their interest, and to give them the best possible chance of meeting their retirement goal. Socially responsible investing may ultimately deliver a social good, but does it serve the investor’s good?

The legal obligation arises from Regulation 28 of the Pension Funds Act. The Explanatory Memo to Regulation 28 is quite specific: “In making investment decisions, a retirement fund should be guided first and foremost by what is best for the fund and its members and should invest accordingly.” Further, “The Regulation does not prescribe what assets a fund should be invested in as this would be counter to the principles guiding a fund to act in its best interests. Instead...the Regulation requires the Fund to explicitly consider its approach to ESG issues (with respect to its investments).”

These points are critical. ESG is an important issue, but it is a subsidiary to the investor's best interests. The Regulator expects retirement funds to consider their approach on ESG issues, but it does not prescribe this approach. Therefore, we first have to ask: “Does socially responsible investing serve our investors’ interests?” To do so, it must increase – or at least not reduce – the likelihood that they will achieve their retirement goal.

The current application of socially responsible investing, based on screening companies and excluding ‘non-compliant’ businesses from the investable universe, does not serve the best interests of investors as it is expensive, subjective and unfairly targets retirement investors.

The biggest cost is the opportunity cost of avoiding companies that are rated as non-compliant. It may be argued that ESG-compliant companies will ultimately deliver a higher return as their businesses are more

are you serving your clients’ interests first?

sustainable, but this is not yet borne out by the performance of the FTSE/JSE SRI Index. The JSE’s All Share Index has outperformed the SRI index by 1.6 per cent per annum over the past 10 years. In the context of a 40-year savings term, and an expected long-term portfolio return of five per cent per annum (before fees), forgoing 1.6 per cent of the equity return would reduce the savings outcome by some 26 per cent.

Further costs relate to the required research to assess and monitor companies in respect of their compliance with ESG principles, which must be recovered from investors by way of higher fees.

The assessment process is subjective and reflects personal beliefs, values and expectations. The following companies are not included in the SRI Index: Barclays Group Africa (formerly ABSA), food companies AVI and Tiger Brands, clothing retailers Foschini and Mr Price, food retailers Shoprite and Spar, luxury goods group Richemont, and media company Naspers. These are among the biggest companies on the JSE, and among the top performers in recent years. We do not know why the JSE excludes these companies, but we believe the assessment process is subjective and based on past rather than future behaviour.

A further concern is that socially responsible investing only targets investors, and retirement investors in particular. If other stakeholders (employees, customers, suppliers and the

State) do not also apply sanctions, non-compliant companies do not hurt where it really matters – in their financial performance. And imposing SRI requirements on retirement funds only prejudices retirement fund members relative to other investors.

At 10X, we adopt a proactive approach byapplying ESG principles to our own business,and by investing in the change we want tosee in our industry. We do this by buildinga business that offers all our investors asustainable investment solution based onpassive life-stage portfolios, low fees, fulltransparency and strong governance. Webelieve this will make it more probable thatthey achieve their retirement goal.

And for us, that is an invaluable social good.

responsible investing: Socially

Socially responsible investing (SRI) pursues financial returns as well as social good.

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NEWSSpecialist wealth manager, Citadel, has announced its acquisition of an outstanding minority shareholding in The Wealth Corporation, taking its ownership stake to 100 per cent. The most recent purchase completes the transaction that began with a 50 per cent stake 20 months ago.

Andrew Möller, CEO of Citadel, says that since the purchasing of a 50 per cent stake in The Wealth Corporation by Citadel in 2012, both partners and clients have benefitted from the combined synergy of the two brands. “The Wealth Corporation has great relationships with its clients and we have been able to add to this through our investment solution, systems and administration platforms. The tie up with Citadel has enabled Wealth Corporation advisers to influence the investment solution in order for its clients to receive something unique in the industry.

The Wealth Corporation is a retirement specialist that engages with clients through a financial planning process, where the ultimate aim is for the client to achieve financial independence and a level of certainty with regards to their future. This process covers the time leading up to retirement as well as the time post-retirement where clients begin to draw down on their capital.”

Citadel acquires 100 per cent stake in The Wealth Corporation

JSE honoured as leader in sub-Saharan Africa

Alexander Forbes Equity Holdings Proprietary Limited, which became a public company and changed its name to Alexander Forbes Group Holdings Limited, has listed on the securities exchange operated by the JSE Limited, subject to requisite approvals by the JSE. This follows the cautionary announcements of 17 April 2014 and 5 June 2014, in terms of which the group indicated that it was exploring various strategic options.

Edward Kieswetter, group chief executive of Alexander Forbes, says the listing will enhance its profile, provide a realisation event for its existing shareholders and grant them access to the capital markets while also attracting and retaining key staff.

Kieswetter adds that the listing will provide a structured and orderly opportunity for the existing shareholders to dispose of a portion of their investment in the group. “It will also enhance the public profile and general awareness of the group and enable Alexander Forbes to access capital markets, if required.”

The offer will comprise an issue of new shares by Alexander Forbes and a sale of existing shares by certain of the existing shareholders. The offer was not open to the public.

Alexander Forbes floats on the JSE main board

The Johannesburg Stock Exchange (JSE) has been recognised as the Best Financial Exchange by Euromoney magazine in the Best Managed Company in Sub Saharan Africa for 2014 category.

The awards are based on a survey

among market analysts at leading banks and research institutes in the region. This year, 257 companies participated across all categories.

Participants were asked to nominate leaders in the sectors and regions they cover; taking into account criteria including profitability, growth potential and quality of management and earnings.

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Brian Lee Irvine

Prescient wealth Management boosts its team

Prescient Wealth Management, the independent private client wealth and portfolio management business in the Prescient Group,

Grant Mann

has announced the appointment of Brian Lee Irvine in business development.

Irvine has 35 years of experience in international trade finance, banking and financial services, including positions at

board and senior management committee levels in various organisations. He was previously a partner at Citadel Investment Services, a private client wealthcare company and subsidiary of JSE-listed Peregrine Holdings. He spent 10 years at Citadel in business development, marketing and public relations.

grant Mann joins 36onE Asset Management operations team

Grant Mann recently joined 36ONE Asset Management as a member of their operations team. Mann was previously the markets operations head at Citibank. He was also a former prime client services and equity synthetic operations head at Deutsche Bank. Mann has more than 10 years’ experience in operations in corporate and investment banking and stockbroking.

Investors, trustees and employers recently benefited from an excellent line-up of speakers at the second annual 10X Retirement Fund Conference. Passive investment manager, 10X Investments, invited delegates under the premise that, “When it comes to retirement saving, no magic spell will make the rabbit appear in the hat. Investors should be under no illusion: what they get out is only what they put in – in terms of contributions, time, risk and fees.”

The speakers included Olano Makhubela, chief director of financial investments and savings, National Treasury, on ‘How retirement reform will impact on your

10X Investments hosts second pension fund conference

retirement fund’; Steven Nathan, CEO, 10X Investments, presenting ‘40 years is a long time for a rabbit not to appear’; independent actuarial consultant Rob Rusconi, who spoke on the topic ‘Helping members take responsibility for their retirement: lessons from abroad’; Patrick Kayton , director at Cognician, on ‘How do we positively influence and change people's behaviour?’; Simon Dingle, journalist and partner at 22seven, presenting information on ‘Why we are more emotional than we realise and what to do about it’; and finally, Tracy Jensen, chief product actuary, 10X Investments, speaking on ‘A sensible

and sustainable draw-down strategy in retirement’.

The conference speakers unpacked what really matters to retirement fund members and how they can reach their retirement goal safely and economically. They discussed helping to identify appropriate retirement goals and presented research to support the saving and investment strategies that have a high chance of meeting this goal. They also explored the many common mistakes that can put this goal out of reach. The conference also provided an update on the National Treasury’s latest proposals and thoughts about retirement fund reform.

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Products

Multiply, Momentum’s wellness and rewards programme, was recently profiled extensively during the national roadshows themed the ‘DNA of financial wellness forums’. At the various events, Multiply aimed to instil two distinctive value propositions that provide members with a unique perspective when it comes to sustainable healthy living.

Multiply focuses on holistic wellness, in which the programme provides members with the opportunity to enjoy a better quality of life. The Multiply programme also focuses on incentivising appropriate behaviour through its wide network-partner discounts and by offering members the opportunity to enjoy a more rewarding life, as well as driving its members’ financial wellness. In addition, members of the programme can earn points by completing the online financial wellness questionnaires and engaging with the online tools and calculators.

Momentum has enhanced its product combinations by introducing the FundsAtWork and Multiply integration benefit. This benefit aims to provide unequalled employee value

Multiply from Momentum: roadshows clarify new enhancements

through combining the FundsAtWork solution with Multiply membership. Members can receive up to 25 per cent of their group risk premiums back based on their health and Multiply status.

In addition, Multiply members with approved group risk benefits will receive up to 25 per cent of their group risk premiums back by way of payments into their retirement savings fund. Members with unapproved group risk benefits will receive up to 25 per cent of their group risk premiums back paid into either their ‘HealthSaver’ account for Momentum Health members, or up to 15 per cent of their group risk premiums back in the form of Pick n Pay Smart Shopper points for non-Momentum Health members.

Barclays Group Africa goes live on EquiLend for securities finance tradingAbsa Bank Ltd (Absa), member of Barclays, has become the first-ever domestic South African entity to execute a securities finance trade via the EquiLend trading platform.

With Absa now trading on EquiLend, the bank and its clients benefit from the ability to automate securities finance trading with EquiLend counterparties around the globe. Furthermore, global market participants now have unprecedented access to the South African market.

Brian Lamb, CEO of EquiLend, says, “As EquiLend’s global footprint continues to expand, we are constantly aware of our

clients’ demands to bring the automation and efficiency gains experienced by users of our platform to new markets.

“We have seen significant interest among domestic market participants in South Africa, keen to elevate their international presence by joining the EquiLend platform. We anticipate considerable growth in this market going forward.”

Francois Henrion, head of equity finance within Absa’s Prime Services business, says: “Partnering with EquiLend was a natural step for Barclays Africa in becoming the continents’ go-to prime brokerage business. Our prime brokerage clients benefit from improved pricing and liquidity in their financing portfolios, and as a lending business, we are able to significantly improve our access to, and utilisation of, inventory.”

EquiLend anticipates greater activity in the South African securities finance market as the need for an efficient means of sourcing securities to cover failed trades becomes increasingly important with the Johannesburg Stock Exchange moving toward a shorter securities settlement cycle.

Moving from the current T+5 to a T+3 cycle has increased demand among domestic market participants for securities finance in South Africa.

About 100 principal lenders, agent lenders and broker-dealers in the securities finance markets globally are active on EquiLend and its fixed-income trading counterpart BondLend.

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The world

wARning oF RiSing PuBLiC dEBt in thE uS

US public debt continues to remain on an unsustainable path and could lead to another financial crisis in the long term. This is according to the Congressional Budget Office, which predicts that US public debt may reach 106 per cent of economic output in 25 years as compared to 74 per cent currently. Federal Reserve chairwoman, Janet Yellen, says early signs of a pick-up in inflation are not enough for the Fed to accelerate its plans for raising interest rates, but this could change if data showed labour markets improving quicker than expected.

CREdit SuiSSE ABAndonS CoMModitiES duE to FinE

Credit Suisse Group has been told to abandon commodities trading due to a US tax investigation, which resulted in the Swiss bank being slammed with a $2.6 billion fine to settle the tax investigation. The fine has caused the Swiss bank to suffer its biggest quarterly loss since 2008. The bank’s net loss in the second quarter was 700 million Swiss Francs (eight billion Rand), compared with a profit of 1.05 billion Swiss Francs a year earlier.

EConoMiC gRowth inCREASES in ChinA

China’s economic growth rose by 7.5 per cent in the second quarter as a burst of government stimulus paid dividend. However, the Asian country will need more support from its capital province Beijing to

meet the estimated annual growth target of 7.4 per cent. The capital received will help address concerns of slowing growth, including tax breaks for small enterprises, targeted infrastructure spending and the encouragement of lending to small companies.

indiA SEtS dEMAndS At woRLd tRAdE oRgAniSAtion

World Trade Organisation (WTO) member India has asked to postpone a WTO Trade Facilitations deal meeting, which would address the provisions for faster and more efficient customs procedures. India’s request comes off the back of the US warning that the Trade Facilitations demands could cripple global trade reform efforts, which are estimated to add $1 trillion (R10.5 trillion) to the global economy and create 21 million jobs.

SA MuniCiPALitiES FundEd R6 MiLLion to hELP PEnSionERS

The Gauteng Member of the Executive Council for Finance, Barbara Creecy, announced during her provincial Treasury budget vote that R6 million will be distributed among all provincial municipalities in the country to assist pensioners with municipal rates and service payments. The funding received by the council will pay the municipality each month. She would also make sure that all provincial government departments paid their monthly bills on time.

gERMAny And ChinA EntER into tRAdE And invEStMEnt dEALS

Germany and China have signed various trade and investment deals, which will see the opening of two new Volkswagen factories and the sale of 123 Airbus helicopters in the near future. Additionally Lufthansa and Air China will form a joint venture that will provide more travel options for consumers as well as give Lufthansa greater access to one of the world’s largest aviation markets.

Eu gRAntS R1.1 BiLLion to LESotho uPLiFtMEnt PRogRAMMES

The European Union will fund various projects in Lesotho to improve water and sanitation in the country. R1.1 billion will be used towards service delivery in urban and rural areas. EU ambassador Lesotho Hans Duynhouwer says the funds will give 64 per cent of the population access to fresh water and that additional money will be used to improve service delivery in urban and rural areas.

ARgEntinA in dEBt with uS invEStoRS

Argentina will face its second default in 12 years if it is not able to repay bonds purchased from New York hedge funds at a discounted rate, after its first default in 2002. In order to repay the investors, Argentina will need to either arrange a deal with the investors or receive more time in order to reach a settlement before the country is sued by investors.

US, SwITzErLAnd, CHInA, IndIA, SOUTH AFrICA, GErMAnY, EUrOPE, ArGEnTInA

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They said

“South Africa is open for business and we need more than 600 companies from America to come invest. While inter-regional trade within the African continent is important, international trade also needs to be encouraged. We need to go out and take advantage of opportunities.” International Relations Minister, Maite nkoana-Mashabane, ahead of the US-Africa summit in Washington in the United States.

“South Africa needs to take clear steps, based on the National Development Plan, to improve its investment climate if it wants to continue attracting multinationals to the country.” Finance Minister nhlanhla nene in a lecture at the East London campus of the University of Fort Hare.

“Trade with African economies and investment in Africa offer big rewards, but it requires sound local knowledge, strong local partnerships and a long-term view. Africa has come a very long way from its era of aid-dependence and the rapidly emerging middle class in Africa is driving large-scale

diversification of Africa’s economies, which offers immense opportunities for companies willing to invest.” Sim tshabalala, CEO of Standard Bank Group in Johannesburg, discussing the investment opportunities on the African continent.

“They significantly enhance the attractiveness of tax incentives available to venture capital investors and in turn should stimulate greater levels of investment into small and medium-sized businesses in South Africa.” Southern African Venture Capital & Private Equity (SAVCA) CEO, Erika van der Merwe, following the discussion of two proposed changes to Section 12J of the Income Tax Act with the South African Revenue Service (SARS).

“The good news is that the European economy is recovering from the crisis. Confidence is improving and financial markets are upbeat, perhaps a little too upbeat. There is a danger of a vicious cycle – persistently high unemployment and high

A collection of insights

from industry leaders over

the last month

debt-to-GDP ratios jeopardise investment and lower future growth.” International Monetary Fund head, Christine Lagarde, during a speech in Paris.

“South Africa’s retirement system is not broken, but it has cracks which must be dealt with by means of reforms. Policy reforms should also encourage annuitising at retirement and encourage non-retirement saving through tax-free saving plans.” olano Makhubela, chief director of financial investments and savings at National Treasury, during a retirement fund conference hosted by 10X Investments.

“Most investment mandates are return-focused rather than liability cognisant and income-based. Trustees are of the view that their role is to maximise returns for members, since they need this (high returns) to live comfortably in retirement. What they are forgetting is that for these people to live, they need good infrastructure, running water and a stable society, so you need to balance these things.” john Anderson, MD of research and product development at Alexander Forbes, at the Actuarial Society of South Africa’s (ASSA) Retirement Matters Conference.

“Many global equity markets reached new highs over the past few months, while most risk indicators declined to historical lows. However, current market levels are mostly in line with underlying fundamentals and are keeping pace with increases in company earnings, dividends and cash flow. Valuations therefore suggest that most markets are trading at or below their long-term fair value.” Portfolio manager at Citadel, Maarten Ackerman, says that a sustainable growth environment, coupled with moderate policy normalisation, should support company earnings going forward. “Increasing the retirement age might reduce the employment opportunities for young people who are currently experiencing relatively high levels of unemployment. However, in South Africa, our challenge is to raise the amount of national savings, particularly long-term savings that households are making. By encouraging people to keep saving for their retirement we contribute to the national savings rate, which unlocks further opportunities for our economy.” Old Mutual corporate GM of member solutions, Craig Aitchison, comments following recent announcements from Joe Hockey, Australia’s Treasurer, of possibly increasing the nation’s retirement age to 70. He says that should South Africa decide to do the same, it may be received negatively as the country is battling with high levels of unemployment.

InvEStsa 41

You said

@Greenbackd: ‘The gambling known as business looks with austere disfavor upon the business known as gambling.’ Ambrose Bierce, 1914. tobias Carlisle – Deep value and contrarian investor. Author Deep Value and Quantitative Value. Principal, Eyquem IM LLC.

@gregbergh: Just as I have tentative hope of some good things from govt, President Zuma wants to ban foreign property ownership. greg Bergh – Adventurer and finance-geek. Curious about everything especially politics and food. And I like to write too.

@WarrenIngram: Good judgment comes from bad experience, and most of that comes from bad judgment.

warren ingram – Author of Become Your Own Financial Advisor. Award winning Wealth Manager, regular on 702 Radio with Bruce Whitfield.

@MichaelJordaan: Don’t confuse genius with a bull market. Michael jordaan – Venture capitalist and wine enthusiast.

@FinanceTrends: In every bull market, some growth stocks or industry themes are bid up to ‘crazy’ valuations. Only the names change (Ex. ‘social media’). david Shvartsman – Founder/Editor of Finance Trends. A trader’s view of the stock market and emerging financial trends.

@ibrolamin: ‘African progress shouldn’t be how many millionaires we produce but how many millions grow out of poverty’ donald kaberuka – AfDB President. Ibrahim A Ahmed

@JamesGRickards: #Ukraine – ‘Buy the dips.’ #Gaza – ‘Buy the dips.’ #Libya – ‘Buy the dips.’ #Iraq – ‘Buy the dips.’ #WorldWar3 – ‘Buy the......oops.’ jim Rickards – Author: NY Times Bestseller, The Death of Money & Nat’l Bestseller, Currency Wars.

@ReutersJamie: That’s now 46 consecutive months of US job creation, the 2nd longest run since World War Two and only 3 months from a new record. jamie Mcgeever – Chief Markets Correspondent, Europe,

@Reuters, via Sao Paulo, Rio de Janeiro, Madrid, New York.

@rfchambers: ‘The policy of being too cautious is the greatest risk of all. - Jawaharlal Nehru. Richard Chambers – Career internal audit professional and Global CEO of The Institute of Internal Auditors shares personal views on internal audit, risk, control, and governance.

@AwadAdvisory: The fact that the industry can still raise and successfully invest hundreds of millions every year, is a testimony of resilience. Awad Advisory – Our company’s vision is to be the trusted advisers & partners of the owners, shareholders, boards & senior leaders of the best institutions in the Middle East.

A selection of some of the best tweets as mentioned by you over the last four weeks.

InvEStsa42

And now for somethingcompletely different

getting more than your money’s worth

Coin During recent excavations in north-western Russia, a rare Roman coin dating back to the Fourth Century AD was unearthed. Besides oil and gold, rare coins are another form of investment that has a diminishing supply. Companies can easily reissue stocks and bonds when there is a demand, but governments cannot mint old rare coins again. Added to this, the supply of rare antique coins is diminishing due to loss, melting, negligence and abuse.

This makes rare coins some of the most liquid collectibles today. In addition, some coin collectors are able to borrow money from banks using their collection as collateral and, as a result, deduct the interest of their loans from any taxable income. Another important advantage of rare coin investments is their portability and easy transferability.

Potential investors in this market should be aware of the price guides for coins as well as their rarity, condition and age. Would-be investors in coins also need to be aware that, while some coins may be old, they may not be worth much due to the quantity available in the market. Without due diligence, investors may pay more for a coin than it is worth. Investors new to coin collecting, either for investment purposes or as a hobby, should always speak to an expert.

It is possible to discover extremely rare coins that can be worth a small fortune, such as the 1943 bronze Lincoln penny worth $1.7 million. An American businessman bought one of these coins at an auction in September 2010. The penny is extremely valuable, as the US Mint in Denver mistakenly struck the coin in bronze rather than zinc due to the government needing copper – the metal of choice for pennies – for the war effort during World War II.

On the local front, rare Graded Mandela R5 coins are a good example of coins worth investing in. The coins were minted to pay tribute to Nelson Mandela but were never put into circulation. Buying from the South African Mint is a good idea. The government has struck a number of commemorative coin sets, with many of them only increasing in value over time.

collections:Sold by the auction firm Stack’s

Bowers, in the January 2013 New York

Americana Sale, this coin set the world

record for a single coin being sold. It is

believed to have been the very first silver

dollar ever minted by the United States.

The United States Mint first opened in

1792, but only minted copper coins and

some pattern coins for the first two years.

This pristine example has been preserved

in its original mint state condition for

over 200 years.

In 1933 the United States was in the midst of The Great Depression. Almost 500 000 $20 gold pieces were minted in that year. President Roosevelt issued an executive order recalling all gold coins from the general public and ordering the mint to melt all the $20 gold pieces that were still in its possession. Somehow, a handful of 1933 dated $20 gold pieces escaped from the Mint’s vaults, even though they were never officially issued.

Currently, they are illegal to own and will be seized by the United States Government – except for one that was originally owned by King Farouk of Egypt. After a long legal battle, the Mint and the private owner agreed to sell the coin and split the proceeds. The buyer had to pay an additional $20 to the Mint in order to monetise the coin so it would be legal to own.

Although this coin was not sold at a coin auction, auction house Blanchard and Company placed it into the hands of a private collector for over $7 000 000. The coin was minted in 1787 by Ephraim Brasher, a silversmith and goldsmith in New York City. At that time, it contained $15 worth of gold. Brasher also made a small number of gold coins that were possibly intended for public circulation, since the US Mint had not yet begun operations.

1794

1787

$10 016 875 1794 Flowing

Hair Silver Dollar

$7 395 000

1787 Brasher Dou-

bloon - EB on Breast

$7 590 020

1933 Double Eagle

1933

InvEStsa 00

Investec Investment Management Services works hand in hand with independent financial advisors, ensuring

they are at the forefront of servicing their clients’ needs. With a large range of investment solutions, web-based

tools and a highly experienced team, we help advisors build wealth for their clients.

For more information, call our Advisor Service Centre on 0860 444 487 or visit investecassetmanagement.com

Asset Management

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Unit Trusts Retirement Funds Offshore InvestmentsInvestec Asset Management is an authorised financial services provider.

75379 IMS A4.indd 1 2014/04/29 10:19 AM

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FROM A LOCAL TO A GLOBAL INVESTORHOW DANIEL JACOBS* INVESTED IN ADVENTURE

“I’ve always dreamed of one day travelling the world. But it wasn’t something that would happen overnight and so I began planning for it. I decided to diversify my portfolio by investing offshore. I put away a lump sum of R50 000 and contributed R1 500 a month to the Old Mutual Global Equity Fund. Ten years later my investment has grown to R739 254 (that’s a 16.3% return a year). I’m now travelling the world, seeing the places I’ve always wanted to see.”

GREAT THINGS HAPPEN TOMORROWWHEN YOU START INVESTING TODAY

Make Old Mutual Investment Group your investment partner today. Contact your Old Mutual Financial Adviser or Broker, call 0860 INVEST (468378) or visit www.omut.co.za/myglobaltravel

Old Mutual Investment Group (Pty) Limited is a licensed financial services provider. Unit trusts are generally medium- to long-term investments. Past performance is no indication of future growth. Shorter-term fluctuations can occur as your investment moves in line with the markets. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Unit trusts can engage in borrowing and scrip lending. Fund valuations take place on a daily basis at approximately 15h00 on a forward pricing basis. The fund’s TER reflects the percentage of the average Net Asset Value of the portfolio that was incurred as charges, levies and fees related to the management of the portfolio. Premium increased in line with inflation at 6%. Distribution reinvested. *Based on average customer experience but actual investment returns.

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