Q1 2019 NewsletterGLOBAL WEALTH
IN THIS EDITION
2019: Reversal of fortunes?
Sasfin Wealth launches SWIP
South African Budget Day 2019
A State of Inertia – Is Silence Golden?
BACK TO CONTENTS PAGE 01 Contents
23
South African Budget 2019 – tough position but no real surprises.
03 Letter from the Editor 13 National Treasury – 28 A State of Inertia – Shaping South Africa’s Is silence golden? 04 A message from the CEO retirement future 29 Infrastructure: The 06 News in brief: 15 Growing in omni- building blocks of your • Sasfin Asset Managers channel investing: portfolio unearths high-yielding Sasfin Wealth launches opportunities SWIP 32 Begin with the end • Roland Sassoon retires in mind • SA Cricket Legends 17 The sun rises in the East showcase young talent and sets in the West 34 Book reviews at Sasfin Cape Town 21 Q&A with Philip Bradford Sixes • Sasfin Asset Managers 23 South Africa Budget achieves B-BBEE Day - 2019 Level 1 status 24 South African Budget 09 2019: Reversal of 2019 – tough position fortunes? but no real surprises @Sasf in Sasf in
BACK TO CONTENTS PAGE 02 LETTER FROM THE EDITOR
Bryan Silke - Investor Relations and Board Liaison Manager, Sasfin Holdings
The Dark before the Dawn?
ith the local General not staying invested, even in tough We are grateful to all those readers Elections fast market conditions. When investors who entered our competition W approaching, professional sell in downturns, they are potentially in the last newsletter to win and lay investors alike are under selling at a lower price and could 1 of 3 Rocketbook notebooks. pressure to hedge their portfolios realise absolute losses.” Congratulations to: Lawson Cairns, against any number of scenarios that Manjula Naidoo and Leon Christiaan could arise. The JSE All Share Index We also introduce readers to the Krynauw, who provided the correct lost 11.4% in 2018 – a devastating recently-launched Sasfin Wealth answer of Sirius Real Estate. Your indictment on the local equity Investment Platform (SWIP). As Sasfin Rocketbooks will be delivered to market, as well as the local economy. Wealth’s Head of Digital Solutions, you shortly. Although we are global investors, Cobus du Preez articulates, a one cannot at best underplay, or at global study by EY concluded On a final note, we bid farewell to worst ignore, the local equity, bond that the majority (59%) of wealth Roland Sassoon, after nearly five and money markets in constructing a clients state that digital will be their decades of service to Sasfin. We will truly diverse portfolio. pay further tribute to Roland in our forthcoming second quarter edition. Our regular Q&A feature in this edition showcases Philip Bradford, Enjoy the read. SW Manager of the Sasfin BCI Flexible Income Fund, whereby he unpacks the various asset allocation strategies [ during a that were employed in delivering the period of low award-winning returns to the growth and low Fund’s investors. returns ]“it is Finance Minister, Tito Mboweni, critical to stay delivered a highly sobering Budget invested.” speech in February. With Eskom having reached its nadir and the associated energy and fuel prices approaching all time highs, South preferred channel for receiving African consumers are under greater advice in the coming years. The pressure, arguably, than ever before. launch of SWIP, a technology-driven This edition addresses some of these solution with online retirement challenges and speaks out some of savings and investment portfolio the implications for investors in our tools, calculators and products, regular Global Macro Review feature, strategically positions Sasfin together with a piece from Veenesh Wealth in this burgeoning market. Dhayalam, Sasfin Wealth’s Head of Sean Young, one of our Cape Asset Manager Research. Veenesh Town-based Portfolio Managers, argues that during a period of low writes on the opportunities that growth and low returns (also referred exist globally in the infrastructure to as a ‘low growth environment’), sector and argues cogently for the it is critical to stay invested. Says need to consider the inclusion of Veenesh: “Investors must carefully infrastructure – the asset class – contemplate the opportunity cost of in balanced, multi-asset strategy.
BACK TO CONTENTS PAGE 03 A MESSAGE FROM THE CEO
Erol Zeki - Chief Executive Officer, Sasf in Wealth
A long-term Sasfin Wealth that have won Raging long-term investment goals Bull awards over the years across of an investor. cheap lunch multiple categories, including Errol Shear, David Shapiro and Over the last three to five years, he Sasfin BCI Flexible Johan Gouws. overall investment markets have Income Fund managed by been exceptionally challenging. TPhilip Bradford, the Chief As a provider of wealth and Uncertainty, corporate scandals Investment Officer at Sasfin Asset investment solutions, we are first and politics, among others, have Managers, won two awards at the and foremost a people business in driven material sell-offs across Raging Bull Awards in January. The terms of the nature of the services local equities and listed property. Fund received awards for the top and solutions we provide, as well Offshore developed market equities, performing Fund in the Best South as the calibre of professionals we where Sasfin manages a significant African Interest-Bearing Fund and amount of money on behalf of employ to deliver these solutions. the Best South African Multi-Asset clients, has certainly been better We take great pride in the depth Income Fund categories. Since but not without its own challenges, and breadth of professional talent inception and net of fees, the Fund with 2018 being the worst year for in our business. has returned an annualised 10.1% US stocks since 2008. against the benchmark, the SteFI Composite Index return of 7.3%. It’s not all about Unusually, over five years, fixed This is a remarkable achievement performance income instruments like bonds, have and testament to Philip’s disciplined significantly outperformed what the process and skill. Over the three While we celebrate these accolades industry typically refers to as “risk years to December 2018, the Fund and the recognition by our peers, assets” locally. Risk assets include delivered a cumulative 42.1%, we do not confuse short- to equity (shares) and listed property. significantly ahead of all other major medium-term performance in a They tend to be more volatile than asset classes in Rands. particular asset class or mandate fixed income bearing investments, category, with the need to take but are expected to, and have Philip now joins the illustrious list a balanced view and match historically, delivered higher returns of investment professionals at investment solutions with the over the long term. >
Performance 200 SA Equities vs. DMs & EMs 180 (ZAR terms) 160
JSE All Share 140
MSCI World 120
MSCI Emerging Markets 100
*Dividends included | Source: FactSet 80 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Oct 14 Oct 15 Oct 16 Oct 17 Oct 18 Feb 14 Feb 15 Feb 16 Feb 17 Feb 18 Feb 19
1 month 3 months YTD 1 year 3 years 5 years JSE All Share 1% 4% 2% -1% 7% 6% MSCI World 4% -3% 4% 17% 9% 12% MSCI Emerging Markets 4% 4% 4% 7% 11% 9%
BACK TO CONTENTS PAGE 04 A MESSAGE FROM THE CEO Continued
Performance 200 SA Asset Classes 180
Preference Share Index 160
SA Listed Property 140
Stefi Composite Index 120
ALBIT Total Return Index 100
ALBIT Total Return Index 80
Source: I-Net data Jul 13 Jul 14 Jul 15 Jul 16 Jul 17 Jul 18 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Oct 13 Oct 14 Oct 15 Oct 16 Oct 17 Oct 18
Over the last six years, South African other asset classes helps create an equities and listed property have adequately diversified portfolio outperformed cash, despite the to meet long-term investment listed property sector significantly “Unusually, over five goals. This concept was originally underperforming in 2018. Global years, fixed income popularised by Harry Markowitz stock market has also increased, instruments like bonds, in the 1950s when he stated that due to various global factors. have significantly diversification is “the only free One of the most topical factors outperformed what the lunch”. We might argue that even is the heightened trade relation though there may be no real free uncertainty between China and industry typically refers lunch, diversification definitely the US. Global growth is potentially to as “risk assets” locally.” provides a cheap lunch, particularly decelerating as the world’s two at a time of broad uncertainty. largest economies lead the slowdown. At the same time, the At Sasfin Wealth we have key Eurozone continues to experience be short-sighted – risk assets are by competencies and solutions across sluggish growth, with the uncertain their very nature volatile, but over asset classes globally. So, as we outcome of Brexit negotiations not the long-term, volatility smooths out celebrate Philip’s achievement in helping matters. and risk assets should outperform. bringing home yet another Raging Instruments like equities property Bull, our focus is on delivering the Stick to the long-term plan stocks are critical building blocks in right solution to meet your personal growing wealth over the longer term. investment goals. This recent underperformance of risk assets, increased volatility and However, one of the most important uncertainty, often leads to rash realisations from the last six years decisions to aggressively decrease and particularly 2018, is the exposure to these instruments in importance of a well-diversified favour of less volatile income assets, balanced investment solution. with steadier and more certain An appropriate mix of equities, returns. However, this thinking would property, fixed income assets and
BACK TO CONTENTS PAGE 05 NEWS IN BRIEF
Sasfin Asset Managers unearths high-yielding opportunities to win big at the 2019 Raging Bull Awards!
combination of pragmatic to take advantage of several asset allocation, the mispriced opportunities in the Aflexibility to find and market. act on opportunities, as well as being mindful of the associated According to Bradford, who also investment risks has ensured that serves as Chief Investment Officer, the Sasfin BCI Flexible Income Fund the Fund’s performance is a achieved an award-winning 42.1% testament to the highly rigorous cumulative return over three years and disciplined investment process ending December 2018. The Fund in trying to provide investors with won two prestigious Raging Bull high-income returns and capital Awards in the Best Interest-Bearing preservation, by flexibly investing Fund and the South African Multi- across a range of bonds and other Asset Income categories at the lower risk income assets. We aim gala function held in Cape Town to provide similar or better returns in January. than that of the All Bond Index with lower volatility. Over the last three years, the Fund’s flexible mandate, together with the Since its inception of July 2015 net Fund’s size and the identifying of of fees, the Fund has returned a high-yielding credit investments, cumulative 40.3%, which is ahead of enabled the Fund Manager, Philip its benchmark and all asset classes Bradford and his investment team in Rands, including equities. SW
executive and non-executive Roland Sassoon and in accordance with banking retires from Sasfin regulations, Roland cannot have a Board or executive position with the Group for one year. In 2020, his past January, Michael however, Roland will be invited to Sassoon succeeded Roland become a non-executive director TSassoon as CEO of Sasfin of Sasfin Holdings and Sasfin Bank, Bank, in addition to retaining his role which has already been approved as Group CEO. This succession was by SARB. in accordance with a plan that was approved by the Sasfin Holdings In the interim and for the duration Board a few years ago and which of 2019, Roland has undertaken to was approved by the South African make himself available as a consultant Reserve Bank (SARB). to the Group, and the business will be able to continue to provide his insight In this regard, Roland will be retiring and guidance, which we have come from all positions in the Group, both to value so much. SW
BACK TO CONTENTS PAGE 06 NEWS IN BRIEF
SA Cricket Legends showcase young talent at Sasfin Cape Town Sixes
A Cricket Legends Allan Donald, up to the event, providing kids with In the last few years, the festival has Brett Schultz and Meyrick coaching tips from Donald, Schultz grown from strength to strength – SPringle shared the stage with and Pringle. The clinics acted as a from around 40 teams in 2016 to just the best of the local amateur cricket platform for talent to be identified over 100 this year, including the SA scene, with their participation in the and pursue a professional career in Cricket and Laureus Legends teams, hugely successful Sasfin Cape Town cricket, while meeting and playing with attracting players from Dubai, Qatar, Cricket Sixes, held in February, at the some of the past greats of the game. Durban and Johannesburg. SW Green Point Cricket Club.
The Festival, now in its fourth year, brought South African cricket fans together, incorporating players across all skill levels, by allowing entrants to participate in different leagues such as a social league, development league and the much-anticipated VIP corporate cup, as well as two new women’s leagues, and the introduction of Fives Futbol.
The event supported the initiative #HitPovertyForASix, which ran various cricket coaching clinics in the run From left: Allan Donald, Ryan Christians, Brett Schultz
BACK TO CONTENTS PAGE 07 NEWS IN BRIEF
Cricketing Legend, Vince van der Bijl, training a young cricketer
Sasfin Asset Managers achieves B-BBEE Level 1 Status
e are proud to announce in five key categories, namely: Equity SAM scored a total of 92.32 points out that Sasfin Assets Ownership, Management Control, of a total of 100 available points. SW WManagers (Pty) Ltd Skills Development, Enterprise (SAM), a wholly-owned subsidiary and Supplier Development, Socio- of Sasfin Wealth, has achieved an Economic Development and overall rating of 1, measured on the Consumer Education. Qualifying Small Enterprises (QSE) scorecard for the financial year SAM’s B-BBEE status demonstrates ended 30 June 2018. The B-BBEE Sasfin Wealth’s overall commitment to assessment and verification, The transformation, one of Sasfin Group’s QSE scoreboard, measures entities strategic focus areas. In this regard,
BACK TO CONTENTS PAGE 08 2019: REVERSAL OF FORTUNES?
Veenesh Dhayalam - Head of Asset Manager Research, Sasfin Wealth
was indeed a Trump the necessary funding to year of note, build his border wall. This resulted 2018characterised in the S&P 500 (-14.0%), Dow Jones by abysmal market performances (-11.8%) and NASDAQ (-17.5%) “... markets had all around the world with local and moving significantly lower. Whilst to deal with a global markets experiencing their there were some positives in the US government worst year in a decade. Whilst both latter quarter of the year, they shutdown from the S&P 500 and the FTSE/JSE ALSI were not enough to buoy markets, (ALSI) ended negatively for the year, as the Euro Stoxx 600 (-13.2%), 22 December, as the paths to the decline were very German Dax (-13.8%), France Congress refused different as per Charts 1 & 2. It was CAC (-13.9%), Spain’s IBEX (-9.1%), to grant President the first time ever that the S&P 500 FTSE Italy (-11.5%) and FTSE 100 Trump the necessary ended the year with a loss after (-10.4%) all ended the final quarter funding to build his being positive for the first three lower. Emerging Markets were border wall.” quarters, whilst the ALSI was on the also impacted during the final back foot for most of the year. quarter, even though we did see some stabilisation in currencies and Coupled with the factors previously inflation. The Russian RTS (-10.4%), mentioned that weighed on the Japanese Nikkei (-17.0%) and Turkey’s global economy, markets had BIST 100 (-8.7%) all moved lower. to deal with a US government Brazil’s Bovespa and India’s BSE 100 shutdown from 22 December, as managed to end the quarter higher, Congress refused to grant President adding 10.8% and 0.2% respectively.
BACK TO CONTENTS PAGE 09 2019: REVERSAL OF FORTUNES? Continued
Chart 1 3100 +15% S&P 500 2018 Performance 3000 +10% 2900 +5% 2800
2700 0%
2600
2500 -5%
2400 -10%
2300 Source: -15% Morningstar 2200 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Chart 2 70 000 +15% FTSE/JSE All Share 2018 67 500 Performance +10% 65 000 +5% 62 500
60 000 0%
57 500 -5% 55 000
52 500 -10%
50 000 Source: -15% Sasfin Asset Managers 47 500 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Is local still lekker? behind by local bonds (7.7%) and South African government bonds local cash (7.3%). Whilst gains in mostly reflect realistic expectations With the local currency weakening local bonds have been reducing for the local economy and have by almost 16% against the US over the last three years, they have benefited from a turn in global Dollar, global returns dominated as remained positive with the ALBI sentiment recently. South African domestic markets continued to lag outperforming the ALSI by more bonds compare favourably to their with global cash (18.3%) and global than 16% in 2018, which is the largest emerging market peers, relative bonds (15.2%), the best performing annual outperformance over the last to their own history and still offer asset classes followed someway 10 years and fourth largest over the a respectable cushion against last 20 years. further global policy normalisation.>
BACK TO CONTENTS PAGE 10 2019: REVERSAL OF FORTUNES? Continued
Once the darling, and downward revision to growth attractive. Similarly, dual listed now the devil forecasts. However, from an income offshore companies are trading at perspective, distribution growth attractive forward yields relative The domestic property sector and expectations around future to their respective long-term had a depressing year underpinned distribution growth remain sound. government bond yields. The by the allegations of share price changes in the property sector manipulation and insider trading On average, South African over the last decade (including levelled against the Resilient Group centric companies are trading at the increased ability to hedge of property companies. forward yields above the long- borrowings and large offshore term South African Government exposures) should make listed The JSE and FSCA (formerly FSB) Bond proxy (RLRS). Despite the property more resilient going are still investigating the validity underperformance, from a valuation forward. If one excludes the offshore of these allegations. Whilst these perspective, the sector is still very exposure, the property sector’s yield investigations, along with the rises to approximately 10.7%. recently announced Fortress PwC investigation remain key events for The continuation of the current the group, it is hoped that they will low-return environment and the be settled in 2019. strain on risky assets, has resulted in single digit returns over a multi-year At the beginning of January 2018, timeframe for various multi-asset the Resilient Group accounted for class funds. This scenario is, over 40% of the SA Listed Property however, expected to continue. Index (SAPY). Due to the losses and the exclusion of Lighthouse 2019: Stay invested! Capital (previously Greenbay) from the Index, at year-end these 2018 was an unsettling year with the companies accounted for roughly all volatility and realised downside 28% of the SAPY. Against this in the equity markets, and investors backdrop, the sector lost over could be forgiven in thinking that 25% in value with majority of the they should flee and jump ship. loss realised in the first quarter of Investors must carefully contemplate 2018. What this equates to is that the opportunity cost of not staying the property sector has returned invested, even in tough market roughly over 5% p.a. over the last conditions. When investors sell in five years, which is effectively the downturns, they are potentially dividend yield of the sector with selling at a lower price and could the capital gains being erased. Risk “2018 was an realise absolute losses. Whilst premiums for listed property have pullbacks are to be expected, as moved upwards, in order to capture unsettling year with the factors that are influential can the risks associated with growth the all volatility and also work against capital markets uncertainty, corporate governance realised downside in and they have regularly suffered issues, balance sheet sustainability the equity markets, losses, markets tend to move up in and key tenant risks, including and investors could be time. The next two examples show Edgars. As a result, income yields the benefits of remaining invested have adjusted upwards, in order forgiven in thinking for the long term, avoiding the to compensate investors for both that they should flee temptation of exiting markets when higher perceived risk in the sector and jump ship.” things get tough. SW
BACK TO CONTENTS PAGE 11 2019: REVERSAL OF FORTUNES? Continued
Example 1 $4,000 6
Investor 1 $3,000
Investor 2 5
Value of investment $2,000 2 4 Time 3 $1,000 1 Source: ScotiaBank
1. Investor 1 and 2 both invest $1,000 at the 4. Investor 2 reinvests. same time. 5. Investor 2 ends up with a smaller gain. 2. Each of their investments grows to $2,000. His $1,000 has grown to $2,500. 3. Investor 2 panics and takes his money out. 6. Investor 1 invested the entire time. Her $1,000 has grown to $4,000.
The illustrative example above demonstrates how two investors begin in the same position and their investments begin to grow. When markets decline, Investor 1 remains invested and takes advantage when recovering markets. Investor 2 exits the market and lags Investor 1.
R2,400 Example 2 (13.9% p.a) R2,200 Growth of R100 on the FTSE/JSE R2,108 All Share Index – 30 June 1995 R2,000 end 31 December 2018 R1,800 (12.3% p.a) R1,600 R1,515 R1,400 (11.0% p.a) R1,200 R1,161 R1,000 (8.7% p.a) R800 R715 R600 (6.8% p.a) R471 (5.2% p.a) R400 R329 (3.7% p.a) R235 Source: R200 Sasfin Asset Managers R0
Fully Fully Invested Missed 5 Missed 5 best days best days best days best days best days best days Missed 10 Missed 10 Missed 20 Missed 30 Missed 40 Missed 50
Example 2 shows how a fully invested portfolio would have returned almost three times the portfolio that missed the 20 best days in the market.
BACK TO CONTENTS PAGE 12 NATIONAL TREASURY – SHAPING SOUTH AFRICA’S RETIREMENT FUTURE
Johan Gouws - Head of Institutional Consulting, Sasfin Wealth
n recent years, National Treasury has been active in driving various Iretirement reform initiatives, with the objective of ensuring a better “Given that most Retirement Funds already apply a life outcome for South Africans during stage model consisting of a series of pre-selected portfolios, retirement. The first material change the impact on Retirement Funds and their members will be in legislation involved the Taxation limited from a pre-retirement perspective.” Laws Amendment Act of 2015, which passed some of Government’s retirement reform proposals into law. These Retirement Fund rules were designed to harmonise the tax treatment for all types of Retirement Funds (i.e. Pension, Provident and Retirement Annuity Funds) and took effect on 1 March 2016. portfolio design must also consider the investment platform offering both active and passive investment available to the Fund and the default Prepare for Default strategies and members will be strategy(ies) that the Fund chooses. Strategies allowed to opt out of default portfolios. The default portfolios Where a member chooses a Living The latest initiative being and investment strategies will need Annuity as their retirement income implemented by National Treasury to be reviewed by Retirement Funds solution, the default investment relates to the requirement for all on an ongoing basis. strategy of the Fund should allow South African Retirement Funds the member to remain invested in to introduce default investment Given that most Retirement Funds the default portfolios that they were strategies. Default Regulations already apply a life stage model invested in pre-retirement. This will came into effect on 1 September consisting of a series of pre-selected allow fund members to experience a 2017, with implementation from portfolios, the impact on Retirement seamless transfer from pre- to post- 1 March 2019 for all Retirement Funds Funds and their members will retirement, as they will not have to registered before 1 March 2018. be limited from a pre-retirement fundamentally change their portfolios The regulations were introduced to perspective. Retirement Funds are or have to select new investment ensure the protection, preservation also required to make available a strategies. The institutional pricing and consolidation of retirement default annuity option at retirement. available under a default annuity benefits, as well as the sustainability It is expected that most funds will will, in most cases, also result in of post-retirement benefits paid opt for both a default Living Annuity the member avoiding the more to fund members. Regulations 37, and a default conventional Life expensive retail pricing offered as 38 and 39 require that Retirement Annuity option, in order to cater part of a third party annuity option. Funds make appropriate default for the needs and preferences of Members will also be able to avoid investment options available to all its members. Members will have any market timing risk, as the Fund members and that all related to actively ‘opt in’ to the default will be able to do a unit transfer of fees and charges be simple to annuity option offered by the Fund. their investment portfolio to the understand, reasonable, transparent The default annuity option might Fund’s default Living Annuity, without and competitive considering the be an ‘In fund’ or ‘Out of fund’ having to sell out of the market and nature of the portfolios. Investment annuity solution, depending on then re-enter the investment market.
BACK TO CONTENTS PAGE 13 NATIONAL TREASURY – SHAPING SOUTH AFRICA’S RETIREMENT FUTURE Continued
For Life Annuity options, the they may invest their retirement Retirement Fund can choose to benefits in any third party Living make available a preferred range Annuity and/or Life Annuity of of life company options that cater their choice. for options such as a single or joint Life Annuity with a fixed income, Retirement Funds are also expected escalating income or inflation- to make financial councillors available linked income option, as well as that can assist fund members in spouse and children’s benefit determining if a Living and/or Life options. Quotes can be obtained Annuity would be the most suitable at retirement for the members to retirement income solution and to consider. Should a fund member not assist members in selecting the most select the client’s default options, appropriate product solution. SW
BACK TO CONTENTS PAGE 14 GROWING IN OMNI-CHANNEL INVESTING: SASFIN WEALTH LAUNCHES SWIP
Cobus du Preez - Head of Digital Solutions, Sasfin Wealth
he world of financial advice Adapting to generational advisors, compared with 51% aged is undergoing rapid change. needs between 35 and 50, or 24% aged TGlobally, progress in between 51 and 71. analytics and artificial intelligence Client expectations of their Wealth has contributed to the rise of Managers are changing, with The South African market lags digital advisors (also known as digital channels being a good international trends, but it is robo advisors). Assets under case in point. A global study by EY evident that clients’ needs are management (AUM) in this segment concluded that the majority (59%) evolving globally. amounted to $330bn in 2018, with of wealth clients state that digital AUM expected to grow to nearly will be their preferred channel for It is therefore important for us to $4tn by 2022. Against this backdrop receiving advice in the coming build our organisational capability is also an expected wealth transfer years. Most clients are also familiar to anticipate and respond to of nearly $30tn from baby boomers with robo-advice offerings. Not market shifts faster than our to millennials over the coming surprisingly, younger generations competitors. Despite this, we decades, which will intensify the are more likely to consider robo- believe that digital advice cannot need for investment solutions and offerings than older age groups, compete with the human aspect of financial advice that caters to a with 61% of clients aged between having a meaningful conversation tech-savvy generation. 18 and 34 likely to consider robo- with a client. Sasfin is built on
BACK TO CONTENTS PAGE 15 GROWING IN OMNI-CHANNEL INVESTING: SASFIN WEALTH LAUNCHES SWIP Continued
meaningful relationships, which Direct clients can access retirement will always be a key differentiator. and voluntary investment solutions However, this does not mean that via the SWIP page on the Sasfin we should ignore technology and website. Here, clients can access the how it will improve our business Retirement Calculator or Financial and our clients’ experience. Needs Analysis tool to help them determine how much they need to Introducing the Sasfin invest for retirement, or to achieve Wealth Investment Platform an investment goal. Clients can (SWIP) follow an electronic onboarding process, with digital signature Technology provides the tools technology if they prefer to do to reach more clients in the so. SWIP is also supported by a way they prefer to be reached. dedicated client service team who is Clients across the generational available to assist telephonically, via spectrum want to access services live-chat or email. via their channels of choice, or combinations thereof. A key part SWIP’s voluntary savings (after-tax of the solution to address these savings) offering is currently limited needs for Sasfin Wealth and our to ETF portfolios, which provide clients, is the recent launch of the investors with local and international Sasfin Wealth Investment Platform exposure, while the retirement (SWIP). savings (pre-tax savings) offering – via ETF solutions or Multi-Asset SWIP is a wholly-owned subsidiary Class PSP – include: of Sasfin Wealth (Pty) Ltd and is a technology-driven solution • Retirement Annuities with online retirement savings • Preservation Pension Fund and investment portfolio tools, • Preservation Provident Fund calculators and products for direct • Endowment “The technology retail clients, third party IFAs and • Living Annuities enables our advisors Asset Managers. The technology to generate quotes enables our advisors to generate More product solutions will and application quotes and application forms be made available via SWIP in electronically and enables them 2019, including model unit trust forms electronically to onboard clients electronically, portfolios, selected direct unit and allows them resulting in a time-saving, trusts, tax-free savings and multi- to onboard clients cost-efficient, improved client asset class offshore portfolios. electronically, experience. External advisors and resulting in a time boutique Asset Managers can Speak to your Portfolio Manager or use the platform as a white label Wealth Advisor if you would like to saving, cost-efficient, product for their clients, or to white find out more about this offering. SW improved client label their own solutions. experience.”
BACK TO CONTENTS PAGE 16 THE SUN RISES IN THE EAST AND SETS IN THE WEST
Mike Haworth - Investment Strategist, Sasf in Wealth
China’s economy is slowing, Strong reserves rather than economic factors in not collapsing 2019. Key milestones this year will be China’s foreign reserves stood at the National Election in May 2019 he suggestion that China’s around $3.09tn as at the end of and the adoption of expropriation economy is slowing is not November 2018. This signalled that without compensation through an Tnew, given its multi-year China had managed to balance amendment to Section 25 of the campaign to curb corporate debt foreign reserve asset risk and returns constitution. and risky borrowing practices, in in 2018. This reflects the country’s addition to the negative effects of foreign payment capability, as well 2018 was marked by a change in the escalated trade war between the as a guarantee against foreign debt, leadership of the ruling party, the US and China. The Chinese equity both of which contribute to national African National Congress (ANC), market has fallen hard, signalling the economic and financial security. with Cyril Ramaphosa becoming expected slowdown and the Chinese The People’s Bank of China (PBoC) President of the ANC and South authorities, and Central Bank are in expects China’s reserves to remain Africa. The new President set up the process of providing targeted around the $3tn level during 2019. four commissions of inquiry, all stimulus to control and soften to investigate corruption and state the slowdown. There are also structural macro capture. These commissions reasons why the Chinese economy were the State Capture inquiry, What has spooked the equity markets will slow down in the years to come. South Africa Revenue Service is that there are signs that China’s The demographic dividend is commission, the Public Investment economic slowdown is sharper declining more rapidly than than many expected, together with expected earlier, due to falling investor views about the momentum birth rates and the country’s urban of the robust US economic growth migrant population returning area being revised down. These home in greater numbers. China two economies contributed the Migrant Population Development most to global growth and China is Report claims that without internal the largest import of commodities, migration, China GDP would have especially metal commodities. only reached 44.8tn yuan in 2016, as opposed to the official reading of In addition, the high debt levels in 74.4tn yuan. One of the main reasons China dictate that the authorities will for the decline in China’s urban not allow a credit binge to develop migrant population is thought to again, but rather will target specific lie in its increasing age, with older sectors for fiscal and monetary people more inclined to return home stimulus to soften the impact of and remain there. The growth scare the slowdown. The Chinese central in the markets around China’s real government has indicated it will GDP growth is tied more to inventory launch fresh policies to further spur spikes and front loading of imports “2018 was marked by a consumption in 2019. These policies and exports in response to the will be aimed at boosting urban escalating trade war, rather than the change in leadership and rural incomes and strengthen fundamental growth in household of the ruling party, purchasing capability. These consumption and services in China. the African National policies are designed to accelerate Congress (ANC), with the growth of the services sector, South Africa – a pivotal Cyril Ramaphosa and expand consumption growth election year and further reduce tariffs and becoming President implement measures to expand Developments in South Africa are of the ANC and commercial imports. likely to be dominated by political South Africa.”
BACK TO CONTENTS PAGE 17 THE SUN RISES IN THE EAST AND SETS IN THE WEST Continued
Corporation (PIC) commission and The effectiveness of parliament’s the constitutional changes the National Prosecuting Authority oversight and accountability to be effected before the (NPA) commission. A clean-up has remains in question, though there National Election. begun in several ministries and is a degree of positive movement State-owned Companies (SoCs). The in subcommittees such as SCOPA. Given the National Election in consequence of these commissions is Disruptions in parliament continue May 2019, we do not expect major that a number of ministers have been to undermine parliament’s cabinet changes or regulation replaced and the boards of several effectiveness and the public’s trust changes before the election, State-owned Companies have also in the parliamentary process. other than the aforementioned been replaced. constitutional amendment. The The land reform issue centred National Election is likely be The clean-up and stabilisation on amending Section 25 of the preceded by forceful political process is the first phase and the Constitution for expropriation rhetoric around land reform and fixing will be the next phase. This without compensation, is expected promises of further radical economic means that in many cases, the to be ratified and legislated in transformation. The October 2018 financial position of the associated Q2:2019, before the National survey undertaken by the Institute ministries and SoCs has yet to Election. A parliamentary of Race Relations (IRR) showed that improve. At this point, no one has committee to draft the no party had an outright majority been prosecuted and jailed, and little constitutional changes to Section and support for the ANC had of the funds misappropriated through 25 was formed in December 2018. risen to 56% at the expense of the malfeasance have been recovered. There are likely to be delays due to Democratic Alliance (DA), which The further financial deterioration has court challenges, but for reduced to 18% and Economic added pressure on the fiscus. political reasons we expect Freedom Front (EFF) at 11%. >
BACK TO CONTENTS PAGE 18 THE SUN RISES IN THE EAST AND SETS IN THE WEST Continued
Economic factors in 2019 • Serious SoC financial and operating under-performances, The surprise in 2018 was the limiting their ability to undertake rebound in growth to 2.2% in fixed investment projects Q3:2018, where the manufacturing • Increased racial quotas for sector contributed 1% of the 2.2% industries regarding ownership, growth, despite the manufacturing management and procurement Purchasing Managers’ Index (PMI) • Uncertainty around land reform averaging 46.6 – an index level and expropriation without below 50 signals a contraction. The compensation tertiary sector, specifically logistics and communication, trade and The contribution to real GDP growth financial services contributed 1.5% from South Africa’s trade balance of the growth, offsetting the loss is expected to be limited despite from mining. the lower imported cost of oil. This is mainly due to lower commodity Importantly, the South African prices associated with the global economy has been, for the last economic slowdown, especially few years, mainly driven by China’s economic slowdown, household consumption. In turn, together with a stronger Rand. household consumer spending has been driven by positive real Forecast wage growth, but constrained by low growth in employment and Using economic forecasts from the little credit growth. Household International Monetary Fund (IMF), disposable income growth has National Treasury and South African been increasingly skewed towards Reserve Bank (SARB), the average the low income groups, while real GDP growth for 2018 was 0.7%, the middle and upper income which sets a low base for growth in groups’ disposable income has 2019. The average real GDP growth been eroded by below inflation forecast for 2019 is 1.6%. This is in wage growth and higher personal line with the population growth “Importantly, the South taxes and VAT. High municipal rate, so the real GDP per capita is African economy has rates and tax increases and utility expected to move sideways this year. been, for the last few tariff increases have further Given weak demand and the lower years, mainly driven by eroded middle and upper income fuel prices, inflation is likely to household’s disposable income. decrease in 2019 compared to 2018. household consumption. Headline inflation is forecast at 5.5% In turn, household This mix of economic activity in 2019, but these forecasts do not consumer spending has is unlikely to change in 2019. account for the full impact of the oil been driven by positive Furthermore, the expansion of fixed price fall, so the final 2019 headline real wage growth, but investment is expected to continue inflation may well be below 5% for to be constrained by: the year and there is little economic constrained by low • Low real GDP growth respite expected in South Africa growth in employment • Fiscal constraint limiting public in H1 2019, due to the focus on the and little credit growth.” sector investment spending National Election. SW
BACK TO CONTENTS PAGE 19 The Fund everyone is raging about.
The Sasfin BCI Flexible Income Fund has outperformed a highly competitive field to achieve an impressive 42.1% cumulative return over 3 years to December 2018. The Fund was awarded two prestigious Raging Bulls: Best South African Multi-Asset Income Fund and Best South African Interest-Bearing Fund.
Managed by the highly regarded and experienced Chief Investment Officer, Philip Bradford, these accolades are a result of a rigorous and disciplined investment process, employed in managing risk and return.
To find out more contactMartin Hyde on 011 809 7779 or [email protected]
WINNER 2018
sasfin.com | 0861 SASFIN
BACK TO CONTENTS PAGE 20 Q&A WITH PHILIP BRADFORD
Philip Bradford - Chief Investment Officer, Sasfin Asset Managers
Economic factors in 2019 – Pragmatism and patience secure a Raging Bull victory
he Sasfin BCI Flexible Income Fund won two coveted Tawards at the 2019 Raging Bull Awards held in Cape Town. We chatted to the successful Fund Manager, Philip Bradford, who also happens to be the Chief Investment Officer at Sasfin Asset Managers, to understand his recipe for success in delivering an annualised 12.06% to investors over three years.
BS: Please describe Sasfin Asset Managers’ overall investment philosophy.
PB: Sasfin Asset Managers has From left: Martin Hesse, Content Editor: Personal Finance, Philip a multi-specialist investment Bradford, Chief Investment Officer, Sasfin Asset Managers and Butana philosophy and offers investors Khoza, Executive Director, Vunani Limited fixed income, multi-asset class, local equity and global equity portfolios. Our experienced team of investment preservation by flexibly investing Overall, the risk in the Fund is professionals follow a rigorous and across a range of bonds and other relatively low and does not invest in disciplined investment process to lower risk income assets. We aim to risky asset classes like equities manage risk and give our investors provide similar or better returns than and property. the best chance of achieving their the All Bond Index with lower volatility. investment goals. BS: According to ProfileData, the BS: What type of investor is Flexible Income Fund achieved a Whilst our specialist portfolios have the Fund suitable for? return of 12.06% over the three years different risk and return objectives, to the end of December 2018. To certain principles remain consistent. PB: The Fund is suitable for what factors do you attribute the We believe that markets are generally conservative investors looking for Fund’s superior performance? efficient but that opportunities will a high yield, lower risk investment exist across the investment spectrum. that can provide regular income. PB: Our process is therefore adaptive to It is designed to be used as the • Tried and tested changing market conditions and has income producing portion of an investment process a strong focus on risk management investor’s asset allocation. • Fund size and diversification. • Experienced management team BS: What are the main risks for • The ability to identify market BS: How does Sasfin bring this investors in the Fund? opportunities and act on the approach to bear in its management opportunities of the Flexible Income Fund? BS: We actively manage the • The Fund has a flexible mandate interest rate and credit risk in the and can adapt to market PB: The Sasfin BCI Flexible Income Fund. The Fund typically has less conditions and take advantage Fund is focused on providing investors than half the duration than the All of opportunities in times of with high income returns and capital Bond Index. weakness
BACK TO CONTENTS PAGE 21 Q&A WITH PHILIP BRADFORD Continued
PB: Over the last three years, PB: We have recently increased our flexible mandate and the the cash holding in the Fund and size of the Fund has allowed us reduced our relative exposure “At times of maximum to take advantage of mispriced to fixed rate bonds after the pessimism we bought opportunities in the market. recent rally. Therefore, we are well longer-dated AAA After “Nenegate”, we calculated positioned for any risks and will bonds, increasing the that the market had overreacted be able to take advantage of any duration of the Fund and we were able to lock in low- weakness. SW and subsequently risk returns of over 12% for many years to come. Our research also reduced the duration identified high yielding credit when markets investments that were not well returned to normal.” known to the broader market. About Philip Bradford BS: What significant changes have been made to the Fund’s asset allocation over the past Philip Bradford is the Chief year in terms of its weighting to Investment Officer at Sasfin BS: Please describe the Fund’s particular assets? Why were these Asset Managers. In addition, he 10 largest holdings at the end of changes made? manages the Sasfin BCI Flexible December 2018 and the rationale Income Fund and chairs the for selecting these assets. PB: At times of maximum Investment and Asset Allocation pessimism we bought longer-dated Committees. Prior to joining PB: The Fund is currently AAA bonds, increasing the duration Sasfin in 2014, he spent six conservatively positioned with of the Fund and subsequently years at Absa Wealth, where he approximately 60% in a range of reduced the duration when markets was also the Chief Investment fixed rate bonds, 20% in floating rate returned to normal. When bonds Officer. Prior to that he spent bonds and 20% in money market are offering yields of 6% to 7% nine years at Investec Bank, instruments. Within the bonds, more above inflation, we are happy where he worked as a bond and than 80% have AA. The reasoning to lock in these returns for our interest rate trader. Philip is a is as follows – fixed rate bonds are investors. CFA Charterholder, a member offering between 2% to 4% above of the FTSE/JSE Index Advisory cash, which is a wide margin and it’s BS: What challenges and Committee and a past President unlikely that interest rates will go up opportunities do you foresee the of the CFA Society South Africa. by more than 2%. Therefore, despite Fund facing in the year head? the risks, fixed rate bonds are likely to outperform cash comfortably over PB: We are concerned about the the medium to long term. economic and fiscal issues facing South Africa and are likely to remain With this positioning, the Fund’s cautious going into the elections current gross yield is just under 11%, in May. We are also keeping a which is attractive compared to cash close eye on global events like the and other asset classes. Trade War, Brexit, the Eurozone and slowing global growth. A low BS: Looking back over the past growth environment is one that is three years, which holdings made typically better to hold bonds, as a particularly strong contribution to we saw in many cases in 2018. the Fund’s performance and what made these shares attractive in the BS: In light of the above, how will first place? you be positioning the Fund?
BACK TO CONTENTS PAGE 22 South Africa Budget Day - 2019
On Wednesday 20 February, Finance Minister Tito Mboweni delivered arguably the most difficult National Budget in post-democratic South Africa. Over the past year, South Africa’s fiscal position has worsened materially with budget deficit and debt ratios deteriorating. Government’s revenues continue to fall short of higher expenditure, which has been growing faster than expected.
Over the next few pages, Sasfin Wealth’s Head of Research, Bradley Mitchell, unpacks the Minister’s budget and advises that South Africa remains structurally fragile, with a very weak potential growth outlook, which combined with moderate inflation is likely to continue to constrain tax revenue growth.
BACK TO CONTENTS PAGE 23 SOUTH AFRICAN BUDGET 2019 – TOUGH POSITION BUT NO REAL SURPRISES
Bradley Mitchell - Head of Research, Sasfin Wealth
s expected, the 2019 National Budget was one of the Atoughest and most likely, one of the most important any Finance Minister in South Africa’s democratic history has had to deliver. In light of the upcoming National Election, the Finance Minister’s cautious approach in a high-risk environment came as no real surprise.
However, while government’s central economic policy goal remains to accelerate inclusive growth and create jobs, while ensuring sustainable finances by containing the budget deficit and stabilising public debt, the reality is that South Africa’s fiscal position has worsened materially compared to 2018, with budget deficit and debt ratios deteriorating in the medium term. Government’s revenues simply continue to fall further short of persistently higher expenditure, which has been growing faster than From left: Cyril Ramaphosa, President of South Africa; Tito Mboweni, expected. Minister of Finance of South Africa
Economic outlook
Unfortunately, the economic growth outlook has weakened since the Initiatives to boost growth investors alike of a commitment to 2018 medium-term budget. On the property rights, particularly in the back of disappointing economic South African growth expectations context of expropriation without performance in 2018, moderating remain well below that of emerging compensation, continued focus global growth, a fragile recovery in market peers and rank towards the on retaining inflation targeting household spending and uninspiring bottom of African countries. The and reassuring confidence in the fixed investment spending, Treasury World Bank recently projected that continued independence of the had to revise its GDP growth South Africa’s economy would only Reserve Bank. expectations considerably lower expand by 1.3% in 2019, putting it to 1.5% for 2019, from its previous among the worst performers in sub- Deteriorating budget deficit estimate of 1.8% in the 2018 Saharan Africa. National Budget. The consolidated budget deficit for The lack of any plan, let alone a FY19/20 was revised to 4.5% of GDP, Treasury noted that structural feasible one to create meaningful which is not only notably worse than reforms and a far more competent economic growth, remained a major its 3.6% estimate in FY18/19, but also state would be required to improve concern, particularly as Treasury has a further deterioration on the actual confidence in the economy, which no room to inject stimulus into the 4.2% FY18/19 deficit. In FY19/20 in turn would help raise economic economy. This could have included government expects to spend growth meaningfully. government assuring businesses and ~R240bn more than it earns. >
BACK TO CONTENTS PAGE 24 SOUTH AFRICAN BUDGET 2019 – TOUGH POSITION BUT NO REAL SURPRISES Continued
The usual options to reduce the Nonetheless, despite being less fiscal gap would be to improve than the R100bn support apparently government revenue by raising requested by Eskom, Treasury tax rates and/or slow growth in allocated a further R69bn financial “Eskom, who, despite government expenditure (fiscal support package, albeit with hundreds of billions consolidation). However, given a conditions, over the next three years of rands of government combination of factors such as an to the struggling power utility, to bailouts, still wallows upcoming national election, an help it service its debts. However, already strained tax base and a Finance Minister Tito Mboweni in R420bn of debt.” low growth outlook, it would seem emphasised that this does not to be very difficult for the Finance imply that government is taking Minister to introduce significant on Eskom’s debt. spending cuts or increase personal income taxes. As part of a broad range of conditions, the Finance Minister … and then there is Eskom and Public Enterprises Minister, Pravin Gordhan, will jointly appoint The deteriorating fiscal situation a “Chief Reorganisation Officer”, is aggravated further by the rising who will work with Eskom’s board liabilities associated with continually and management to carry out the underperforming State Owned recommendations of the Presidential Companies (SoCs) – particularly Task Team. Eskom, who, despite hundreds of billions of rands of government Over and above the additional bailouts, still wallows in R420bn significant drag on the already of debt. battling state finances, Eskom also
BACK TO CONTENTS PAGE 25 SOUTH AFRICAN BUDGET DAY 2019 TOUGH POSITION BUT NO REAL SURPRISES Continued
poses an immediate and substantial economic weakness and higher than Fuel levy hike and carbon tax threat to the economic prospects expected VAT refunds. As such, the of the country. Inept maintenance tax revenue estimate for FY18/19 The fuel levy was increased by programmes, which were most likely has been revised down by R15.4bn, 29c/litre for petrol and 30c/litre for worsened by malicious corruption, relative to the October 2018 diesel. This consists of 15c/litre in are estimated to have further cost mini-budget. This marks the third the General Fuel levy and 5c/litre the South African economy over consecutive year that tax targets increase in the Road Accident Fund R10bn in February 2019. This, at a have not been reached. levy, both of which are included point when the low growth South in the price of petrol and diesel. African economy is already being Personal income tax rates were The balance of the increase is the driven more by structural rather than left unchanged, but so too were introduction of the carbon fuel levy. cyclical factors. the personal tax brackets. This These levies now make up more than results in ‘bracket creep’, where 40% of the total cost of a litre of fuel. Lower revenue projections – more people move up into higher a major concern tax brackets as incomes rise, even Minister Mboweni also announced if increases are merely in line with that 1 June 2019 would be the The tax revenue estimate for FY18/19 inflation. This ‘stealthy’ tax increase implementation date of the new was revised down again by a further will effectively raise an estimated carbon tax on companies. R15.4bn, which brings the total additional R12.8bn in personal revenue shortfall to a staggering income tax revenue, despite the Expenditure cuts R42.8bn. These, following already slight adjustment to rebates. substantial downward revisions in Measures will be introduced October 2018. Tax rates on income, dividend, to achieve an estimated R27bn capital gains and VAT were all left reduction in the state salary bill Persistently weak economic activity, unchanged. over three years, by incentivising predominantly in the mining and early retirement in the public sector. financial sectors, resulted in a Treasury will also have to focus However, the expansion of social moderation in corporate income on substantially improving the protection expenditure appears to tax receipts. Job losses, lower wage collection efficiency of SARS, in remain a non-negotiable, with no settlements and reduced bonuses order to increase taxes sufficiently to cuts emerging, which is perhaps have also put pressure on income fully meet the burgeoning revenue understandable until structural tax receipts. holes created by the growing changes translate into improved expenditure burden at SoCs. business confidence, employment Despite domestic VAT income and ultimately economic growth. contributing well, net VAT collections have been considerably lower since Real growth in non-interest October 2018, as SARS accelerated expenditure is expected to average payments of VAT refunds. 2% per annum over the next three years. The fastest growing Raising an additional area of spending is community R12.8bn in taxes – development, which includes by ‘stealth’ funding for free basic services “Real growth in non- and human settlements. Over While the revenue collection interest expenditure the next three years, more than shortfall was partly caused by half of government spending will issues with tax administration at is expected to average be allocated to basic education, the SA Revenue Service (SARS), 2% per annum over community development, health it was also impacted by broad the next three years.” and social protection. >
BACK TO CONTENTS PAGE 26 SOUTH AFRICAN BUDGET 2019 – TOUGH POSITION BUT NO REAL SURPRISES Continued
Government has to lift the South Africa remains structurally expenditure ceiling (in relation fragile, with a very weak potential to non-interest expenditure) by growth outlook, which combined R14bn in FY20, to accommodate with moderate inflation, is likely additional funding required for to continue to constrain tax “Over the next three the restructuring of Eskom. revenue growth. years, more than half of government spending Government debt Considering continued SoC will be allocated to basic deteriorates underperformance, we believe that a continued strong upward education, community The level of debt and pressure on government development, health and macroeconomic variables, such expenditure remains likely. SW social protection.” as interest, inflation and exchange rates, influences government debt- service costs. Debt-service costs are now over R1bn a day.
Net debt is expected to exceed R2.5tn in FY18/19 (~49.9% of GDP), and will increase further to almost R3.5tn (~55.5% of GDP) by FY21/22, which could result in debt-service costs rising to over R200bn (~4% of GDP).
Gross debt to GDP is now expected to stabilise at 60.2% by FY23/24, higher than the 59.6% projected in October last year.
Making the grade
Further fiscal slippage, along with weak economic growth and further bailouts for troubled SoCs, ultimately result in a dangerous combination from a ratings perspective.
In a pre-Budget commentary, Moody’s stated that government financial support to Eskom would be credit neutral, as long as it was “accompanied by measures that durably stabilise [Eskom’s] financial health”. However, the announcement of financial support without announcing additional savings measures, would most likely be credit negative for South Africa.
BACK TO CONTENTS PAGE 27 A STATE OF INERTIA – IS SILENCE GOLDEN?
Sarah Simson - Senior Fiduciary Specialist, Sasfin Wealth
he 2019 budget speech enticed tax payers to believe Tthat there would be no increases in personal income tax. The fact that there were no direct increases, however, certainly does not negate the fact that there will be indirect increases to personal taxes earned from employment income, as a consequence of the fiscal drag.
The normal inflation-related increases in employment income lead to higher income, which naturally falls into higher tax brackets. The tax brackets are not inflationary linked. This means that your effective after-tax income may diminish, as a result of no relief being provided by the adjustment of the tax brackets to be commensurate with inflation.
The inertia in the income tax “The new legislation will impose a threshold of R1 million brackets, whilst the costs of living on the foreign income tax exemption, with any amount in continue to rise, may ultimately excess thereof being subject to up to 45% income tax.” leave an unsuspecting taxpayer in a higher tax bracket with less net income. the expatriates were allegedly to emigrate financially, with South benefiting from double non- African Reserve Bank exchange The Impending ‘Expat Tax’ taxation, a notion frowned upon control effects, thus terminating by the Organisation for Economic one’s South African Tax Residency 1 March 2020 will see the dawn Cooperation and Development and terminating one’s obligation of new tax amendments that will ‘OECD’ to which South Africa has to pay tax on one’s worldwide impact upon expatriates. observer status. income.
Employees working abroad have The new legislation will impose Whilst the proposed amendments been subject to Section 10(1)(o) a threshold of R1 million on the are due to be effective on the (ii), which permits South African foreign income tax exemption, above date, such amendments Residents working abroad for with any amount in excess thereof may be still subject to debate 183 days or more, to be exempt from being subject to up to 45% income and discussion as to whether the tax on income derived offshore, tax. These taxpayers will, however, legislation ought to be amended resulting from that employment. still benefit in concept from the or supplemented. This allowance was based on the foreign tax credit system. However, premise that tax would be payable it remains to be seen how effective The actual application of the new in the jurisdiction of the source the application of this relief will be. legislation remains a misnomer for of that income. As some of these now, and it remains to be seen how jurisdictions had proven to be no In order to ameliorate the effects effectively the tax credit rebate or low tax jurisdictions, some of of this legislation, one could opt system will be applied. SW
BACK TO CONTENTS PAGE 28 INFRASTRUCTURE: THE BUILDING BLOCKS OF YOUR PORTFOLIO
Sean Young - Portfolio Manager, Sasfin Wealth
onceptually, infrastructure Trump’s clarion call hurting our communities’ ability to is one of the earliest forms grow, it’s hurting our quality of life Cof investment throughout US President Trump’s 2016 election and in some cases, there are public human history and it has been campaign was won on three core safety concerns.” the foundation of any successful messages – namely, tax cuts, civilization or economy. Despite this, healthcare reform and to “Make Since the mid-term elections in late it is the newest listed asset class America Great Again”, which is 2018, it seems the only issue both globally with the first infrastructure heavily linked to repairing the the GOP and Democrats agree on indices achieving their 10-year country’s infrastructure. The third is ensuring infrastructure investment anniversary in 2018, leading to their goal required the most urgent is a top priority. Notwithstanding increasing use by retail investors. attention. According to the American a few arguments over the cost of a Society of Civil Engineers (ASCE) certain wall, Peter DeFazio, Chair of The last decade of global growth most recently published annual the Transportation & Infrastructure since the global financial crisis report, 40% of the US’s 614,387 Committee, confirmed that he has been driven predominantly bridges are over 50 years old, 9.1% would like to introduce a US$500bn by monetary policy. However, were declared structurally deficient infrastructure bill in 2019. even in most developed markets, in 2016 and alarmingly, 188 million infrastructure maintenance and trips are made across one of those especially new projects have lagged deficient bridges every day. The the population and economic growth average age of the 90,580 dams in by a staggering margin over the the US is 56 years – 15,500 of these long term. The world is changing have been classified as high-hazard “The world is changing faster than ever before in the way and 2,170 as deficient high hazard faster than ever before we consume resources, the way we due to lack of investment. Kristina in the way we consume commute, the way we shop and just Swallow, 2018 president of the resources, the way we the way we live from day to day. One ASCE, summarises the extent to common theme emerges through all which poor infrastructure affects commute, the way we these trends – we are going to need a the lives of Americans as follows: shop and just the way lot more infrastructure. “It’s hurting our economy, it’s we live from day to day..”
BACK TO CONTENTS PAGE 29 INFRASTRUCTURE: THE BUILDING BLOCKS OF YOUR PORTFOLIO Continued
If all S light vehicles were electronic Share of S New Electric Generation by Fuel Type GROWTH DRIVERS
201 le tr ve les ro t of + 201 rene a les 2016 un an e of o l an as
Utilities SOLAR WIND COAL NAT RAL GAS OTHER art r n rease n te nolo ele tr t n an solar o er a ounte for ore t an 0 = 25% e an of ne ele tr t enerat on n 201 an 201
Projected Global Growth 5G Value Chain R&D GROWTH DRIVERS of Wireless & Capex Forecast 0 (2020 - 2035) los ve ro t 20 of 2016 96 lo an ts a t
a an on e o er e Global 10 2021 2 8 man S. o a F anc ina s of o S S wi c aim s a a s wo s of a c ain. E ABYTES PER MONTH c n a of a a s a Communications 0
Infrastructure Capital Investment Needs Projected Net S LNG Exports GROWTH DRIVERS lo al nfrastru ture a re ate a tal ee for n rease nvest ent nee s nvest ent nee s 20 2010 201 20 0 ele tr trans ss on 20 0 16 ee for ore 37% Electricity trans ss on 12 Power 2% Biofuels ee to u ra e Energy sector $65 1% Coal $4.6 8 a n nfrastru ture tn 60% Oil & gas tn
Infrastructure infrastructure 201 202 20 0 20 20 0 2020
0 a
Global e-Commerce Rising S Parcel Shipment Trend GROWTH DRIVERS Sales Forecast 12 12 art are ouses 10 10 e o er e oo 8 8 2010 lou ase 6 6 2010 lo st s as a serv e el ver sru tors 2010 2 an nnovators
2010 2 2 2010 2011 2012 201 201 201 2016 2010 & Logistics ow 2010 2010 0 0
2010 1 2010
Transportation Transportation om in s S S om s ic s i in an ac a in s ic s 2010
2010 o m F ca n a a om s ic ac a o m s an 0 S in i ions S S om s ic ac a o m s.
Growth of internet-capable devices Rising global EV light-duty vehicle sales GROWTH DRIVERS Global market 20 0 of all ne
ar sales an 20 0 ata Sma 20 120 o s of t e lo al ar 20 0 lo 202
fleet ll e 2020 100 n rease
201 1 . i ion ic s 201 ele tr 80 auto at on 60 of ever t n 202 . i ion ic s Enablers EV sales/year 0
in millions 2 WORLD TOTAL 20 ICE sales/year 8 o c o ins a i ic s in i ions in millions 1 0
Source: Visual Capitalist
BACK TO CONTENTS PAGE 30 INFRASTRUCTURE: THE BUILDING BLOCKS OF YOUR PORTFOLIO Continued
Water scarcity and how Investors need to go blue. Urbanisation effects on water demand to deal with it Water is a US$600bn market are more pressing every year and it is today and is delivering a forecasted that by 2030, up to 5 billion Another primary theme driving compounded annual growth people will be living in cities. our global infrastructure asset rate of 7%, which is well above allocation is peak water and our global growth rates. It is forecasted Due to governments around the belief that water will be the ‘oil of by 2020 to be a US$1tn industry. world already being highly indebted, the 21st century’. Water scarcity From an investment perspective, coupled with a trend of downward is a pressing global human issue. there are four entry points for pressure on tax rates, private Presently, over 2 billion people investors related to water – namely, capital is needed, which creates have no access to proper sanitation 1) Treatment 2) Management the opportunity for retail investors. and 768 million people have no 3) Infrastructure and Supply In conclusion, an allocation to access to clean drinking water. 4) Water-friendly Energy. infrastructure provides a real inflation According to the WEF, 50% of the hedge, an attractive dividend yield, world’s population will be living According to Citigroup globally, very effective diversification and in conditions of ‘water stress’ by up to $7.5 to $9.7tn of investment is exposure to multiple growing global 2030 and 40% in ‘severe water needed to meet demand for water trends that your portfolio’s future stress’ by 2050. and sanitation related equipment. returns can be built on. SW
Fresh water availability in different regions
Europe
Asia North America Africa
Latin America Oceana
Region Africa Asia North America Latin America Oceana Europe % Global population 16% 60% 5% 9% 1% 10% % Fresh water available 10% 33% 29% 16% 35% 8%
Source: Curmi et al, Hejazi et al (2014), UN population statistics, citi research
BACK TO CONTENTS PAGE 31 BEGIN WITH THE END IN MIND
Chris Jordan - Business Development Manager, Sasfin Wealth
teven Covey says that we a more appropriate response is should “begin with the end in to change our thinking and focus Smind”, so that all our actions on the opportunities created by are taken with a clear vision of the change in global energy “... a more appropriate achieving our ultimate goal. generation trends. response is to change our thinking and focus on the Load shedding, two of the most There are two shares listed on the feared words in South Africa, Johannesburg Stock Exchange that opportunities created by should therefore be the starting can benefit from the transition from the change in global energy point from which to envisage a fossil fuels to solar and wind power. > generation trends.” “brighter” future.
One step forward, two steps back
Eskom was established in 1923 as the Electricity Supply Commission. In 1925 it built its first power station, a hydroelectric facility, followed in 1928 by the commissioning of the first power station in the world to burn pulverised coal. While this was an exceptional innovation at the time, it appears that Eskom’s reliance on coal has now become its Achilles heel.
Traditional energy generators are out of favour because of the high cost and the long lead times associated with the construction of new facilities, the cost of maintaining existing facilities and the global demand for cleaner energy generation.
Albert Einstein is quoted as saying “The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.”
Our reliance on Eskom for the last 93 years may have left us stuck in our historical paradigm, but rather than being overwhelmed by negative external factors that we cannot change, such as load shedding,
BACK TO CONTENTS PAGE 32 BEGIN WITH THE END IN MIND Continued
Investment opportunities Scatec Solar (SSO), listed in Norway. in the maelstrom Both companies offer photovoltaic solutions, although Sunrun is GAIA Infrastructure Capital (GAI) focused more on the domestic has minority holdings in the Dorper market in the US and Scatec’s market Wind Farm in the Eastern Cape and in industrial applications across the Nobelsfontein Wind Farm in the various geographies from Brazil to Northern Cape. Both these facilities the Ukraine. have agreements with Eskom to provide electricity directly into the Sunrun’s share price has national power grid. GAIA also has appreciated by 148% over the last interests in three solar photovoltaic 12 months and it is now trading on a farms. The share price is currently p/e of 26.7. It did not pay a dividend at a 40% below its Net Asset Value in the last financial year. The share (NAV) and they pay a healthy annual price of Scatec Solar has increased dividend of around 10%. The price by 61% over the same period, but earnings ratio (p/e) is about 9.6, it is now on a very demanding p/e which is relatively inexpensive. of 134.9, with a dividend yield of only 1%. Both companies appear Alviva Holdings (AVV) is probably expensive, but their future growth better known as an information prospects may justify their high technology company, but it is valuations. also active in the renewable energy sector through Solareff, In general, investments in the its renewable energy division. renewable energy sector have not Solareff has installed numerous yet produced outstanding returns, solar photovoltaic energy solutions, but the drive to reduce the use of grid tied and off grid, in shopping fossil fuels in energy generation will centres and office parks throughout intensify in the future, and the use South Africa and in Namibia. In of solar and wind to supplement 2017, they acquired a 75% stake in the existing power infrastructure GridCars, a leading service provider will ultimately be endorsed by in electric vehicle charging. Alviva’s governments and gain greater share price is down about 5% over acceptance amongst consumers. the last 12 months, but this has largely been compensated for by its “In general, Steven Covey says that “every dividend payments. It is currently investments in human has four endowments – self- trading on a p/e of 6.2, which under the renewable awareness, conscience, independent normal market conditions should will and creative imagination. result in strong buying activity. energy sector have These give us the ultimate human not yet produced freedom… the power to choose, to Internationally, there is a wider outstanding returns, respond, to change.” selection of companies in the but the drive to renewable energy sector and based reduce the use of Perhaps the crisis at Eskom will be on their share price performance fossil fuels in energy the catalyst for change in energy over the last 12 months, two of the generation in South Africa and over more promising investments appear generation will the long term, investors may be well to be Sunrun Incorporated (RUN) intensify in rewarded for their early investment listed on the Nasdaq in the US and the future...” into the alternative energy sector. SW
BACK TO CONTENTS PAGE 33 BOOK REVIEWS
The Resurrection of Winnie Mandela Sisonke Msimang
The death of Winnie Madikizela Mandela settled, what emerged is this short but on 2 April last year unleashed a hailstorm razor-sharp book that reflects critically on of opinion. On one side, her legacy was cast the turbulent, yet remarkable life of Winnie. by the media and public in the shadow of her Msimang situates her political career and sanctified ex-husband. Winnie was history’s legacy in the contemporary context – what loser. She was damaged goods – Nelson she means today in social and political Mandela was whole and pure. terms – by exploring different aspects of her iconic persona. A younger generation – in particular women – took a different view, and so The Resurrection of Winnie Mandela is an a battle of ideas began that sought to astute examination of one of South Africa’s reframe Winnie’s career and reclaim her most controversial political figures, of the rise identity as an extraordinary woman and and fall – and rise again – of a woman, who fierce political activist. not only battled the apartheid regime, but the patriarchal character of the struggle itself. Sisonke Msimang, an acclaimed author and In telling Winnie’s story, Msimang shows that public commentator, wasted little time in activism matters and that the meaning of jumping into the fray. And when the dust women’s lives can be reclaimed.
The Expertise Economy – How the Smartest Companies Use Learning to Engage, Compete and Succeed Kelly Palmer & David Blake
The Expertise Economy shows companies, companies in the world are making big and small, how to transform their learning and expertise a major employees into experts and ultimately competitive advantage. their biggest competitive advantage.The world of work is going through a large-scale The authors provide the latest scientific transition with digitisation, automation and research on how people really learn, as acceleration. Critical skills and expertise well as concrete examples from companies are imperative for companies and their in both Silicon Valley and worldwide, who employees to succeed in the future, and the are driving the conversation about how to most forward-thinking companies are being create experts and align learning innovation proactive in adapting to the shift in the with business strategy. The book includes workforce. interviews with people from top companies like Google, LinkedIn, Airbnb, Unilever, Kelly Palmer, Silicon Valley thought-leader NASA and MasterCard – thought-leaders from LinkedIn, Degreed and Yahoo, in learning and education like Sal Khan and and David Blake, co-founder of Ed-tech Todd Rose, as well as Thinkers50 list-makers pioneer Degreed, share their experiences Clayton Christensen, Daniel Pink and and describe how some of the smartest Whitney Johnson.
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The South African Informal Sector: Creating jobs, reducing poverty Frederick Fourie
While the informal sector is the ‘forgotten’ hardship and failure, pointing to the need sector in many ways, it provides livelihoods, for well-designed policies to enable and employment and income for about 2.5 million support the sector, rather than suppress it. workers and business owners. One in every six The same goes for formalisation. Recognising South Africans who work, work in the informal the informal sector as an integral part of sector. Almost half of these work in firms the economy is a crucial first step towards with employees. These firms provide about instituting a ‘smart’ policy approach. 850,000 paid jobs – almost twice the direct employment in the mining sector. This volume is strongly evidence- and data-driven, with substantial quantitative The annual entry of new enterprises is quite contributions combined with qualitative high, as is the number of enterprises that findings – suitable for an era of evidence- grow their employment. There is no shortage based policy-making – and utilises several of business initiative and desire to grow. disciplinary perspectives. However, obstacles and constraints cause
Africa’s Business Revolution: How to Succeed in the World’s Next Big Growth Market Acha Leke, Mutsa Chironga & Georges Desvaux
For global and Africa-based companies building profitable, sustainable enterprises. looking to access new growth markets, Africa From senior leaders in McKinsey’s African offers exciting opportunities to build large, offices and a leading executive on the profitable businesses. Its population is young, continent, this book draws on in-depth fast-growing and increasingly urbanised, proprietary research by the McKinsey while rapid technology adoption makes the Global Institute, as well as McKinsey’s continent a fertile arena for innovation. But extensive experience advising corporate Africa’s business environment remains poorly and government leaders across Africa. understood – it’s known to many executives in the West only by its reputation for complexity, Brimming with company case studies and conflict and corruption. exclusive interviews with some of Africa’s most prominent executives, this book comes Africa’s Business Revolution provides the to life with the vibrant stories of those who inside story on business in Africa and its have navigated the many twists and turns on future growth prospects, and helps executives the road to building successful businesses on understand and seize the opportunities for the continent.
These book reviews are printed with the kind permission of MoneyMarketing. https://www.moneymarketing.co.za BACK TO CONTENTS PAGE 35 Contact us
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