After three years of low equity returns, investors drawing an income from their investments may be considering shifting some of their portfolio exposure away from multi-asset funds with equity exposure towards cash. However, the appropriate time for switching - if there ever was any - has passed, and retirees are in danger of eroding the longer-term value of their retirement capital should they switch now. This trend towards cash has been evident in South Africa over the past year in the wake of the higher returns (of around 7.0% p.a.) offered by bank deposits and money market funds compared to riskier equity holdings. Poor equity performance has dragged down the returns of well-diversified multi-asset funds in which many retirees are invested: the average ASISA low-equity multi-asset fund delivered only 6.3% p.a. over the three years to 31 July 2017, and the average ASISA high-equity multi-asset fund (the typical “balanced” fund) returned only 5.5% p.a. over the same period, according to Morningstar. Compare these returns with those of the past 15 years, where high-equity fund returns averaged 12.5% p.a., and low-equity funds averaged 10.0% p.a. The longer-term performances are in line with the funds’ generally accepted return targets of inflation + 4% for the less aggressive low-equity category, and inflation + 6% for the more aggressive high-equity category, with long-term inflation at approximately 6%. Given their recent under performance, retirees dependent on income from multi-asset funds may think that they will benefit by moving to cash now. However, they would be getting their timing wrong by being too late. Current valuations show that prospective returns from multi-asset funds are higher than those from cash assets. So by moving to cash now, retirees will be exposed to falling cash returns in future (the SARB has already started cutting short-term interest rates), and will miss out on any improvement in returns from multi-asset funds.
The accompanying graph shows how a R1.0 million retirement investment has performed over the past 15 years (July 2002-July 2017), starting with a 5% annual drawdown and escalating the drawdown by inflation, when invested in different funds. The initial capital investment is represented by the fixed black line. In order to have maintained its real value over time, it would have needed to grow at a rate equal to inflation, to R2.26 million (as shown by the red line). Would a money market investment have given the retiree an adequate return over the 15 years? Clearly not: the yellow line in the graph depicts how the R1.0 million would have performed invested in the average South African money market fund (the ASISA IB Money Market category) while drawing the income over the period. Due to its low return, the capital would have grown to only R1.25 million. Although it would have successfully given the retiree their income (totalling R1.1 million), the real value of the retiree’s capital would have been significantly eroded (shown by the gap between the red and gold lines). By contrast, an investment in the average low-equity multi-asset fund is shown by the green line. Although the fund return varies over time, it manages to outperform or remain in line with the inflation requirement (red line) for much of the period. Its more recent underperformance is partly compensated by the earlier excess performance. The retiree ends up with R2.09 million, while also having drawn down R1.1 million in income payments over the 15 years. From this evidence, it is clear that multi-asset funds have been delivering the returns they are expected to over longer periods, and investors, especially retirees, need to think twice before moving away from them. Anyone switching to cash now is likely getting the timing wrong – they will receive lower returns over the longer term (as the graph demonstrates), or if they plan to switch back to multi-asset funds later, they will also likely mistime their move. To set up an appointment with our Financial Planners, please contact Kevin, email: [email protected] tel no: (011 658-1333) Written: Pieter Hugo Source: Prudential
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Take advantage of the positive market sentiment with Discovery Invest investment opportunities
There has been a wave of positive sentiment in South Africa following Cyril Ramaphosa’s election as president, with positive reactions to the budget speech and a strengthening of the rand. Investors’ sentiments are on the rise again. With this positive investor sentiment in mind, Discovery investment opportunities provide clients with:
To get a quote on different Discovery Investment options, please contact Kevin or Ray, email: [email protected] tel no: (011 658-1333) Source: Discovery invest What is the fund’s objective? Strategic Income aims to achieve a higher return than a traditional money market or pure income fund.
What does the fund invest in? Strategic Income can invest in a wide variety of assets, such as cash, government and corporate bonds, inflation-linked bonds and listed property, both in South Africa and internationally. As great care is taken to protect the fund against loss, Strategic Income does not invest in ordinary shares and its combined exposure to listed property (typically max. 10%), preference shares (typically max. 10%), international assets (typically max. 10%) and hybrid instruments (typically max. 5%) would generally not exceed 25% of the fund. The fund has a flexible mandate with no prescribed maturity or duration limits for its investments. The fund is mandated to use derivative instruments for efficient portfolio management purposes. Important portfolio characteristics and risks: Strategic Income is tactically managed to secure an attractive return, while protecting capital. Its investments are carefully researched by a large and experienced investment team and subjected to a strict risk management process. The fund is actively positioned to balance long-term strategic positions with shorter-term tactical opportunities to achieve the best possible income. While the fund is managed in a conservative and defensive manner, there are no guarantees it will always outperform cash over short periods of time. Capital losses are possible, especially in the case of negative credit events affecting underlying holdings. How long should investors remain invested? The recommended investment term is 12-months and longer. The fund’s exposure to growth assets like listed property and preference shares will cause price fluctuations from day to day, making it unsuitable as an alternative to a money market fund over very short investment horizons (12- months and shorter). Note that the fund is also less likely to outperform money market funds in a rising interest rate environment. Given its limited exposure to growth assets, the fund is not suited for investment terms of longer than five years. Who should consider investing in the fund? Investors who are:
To invest in Coronation Fund, please contact Kevin or Ray, email: [email protected] tel no: (011 658-1333) Source: Coronation Yesterday (Happy International Women's Day!) I was fortunate to visit Dodge & Cox in San Francisco, US. Kevin Johnson, an experienced portfolio manager at Dodge & Cox, was kind in spending over an hour with me, for me to understand more about the firm, its operations and investment outlook. Dodge & Cox is situated in the Financial District of San Francisco, occupying 4 floors in this very impressive skyscraper on 555 California Street. After the guest registration process at the lobby, I was told to take a lift to the 40th floor. When the elevator door opened, I walked onto think carpet, with the gold plated Dodge & Cox signage in front of me. I knew I was at the right place. The office has stunning views of the San Francisco Bay area. The tall building in the second picture is Transamerica Pyramid, 260m high. Kevin Johnson came and welcomed me, took me to the boardroom with stunning views of San Francisco. I decided to sit with my back facing the view/window, so I could better focus on my discussions with Kevin. Kevin Johnson is well versed in the investment markets, with 28 years of experience at the firm. I gave him a background of what Daberistic does, our wealth management services to our clients, and how Dodge & Cox funds fit into our solutions to our clients. Kevin then gave me a presentation booklet on Dodge & Cox UCITS. I am not familiar with the term UCITS, so afterwards I googled it. UCITS stands for “Undertakings for Collective Investment in Transferable Securities". In essence mutual funds, or unit trusts as known in South Africa. Dodge & Cox was founded in 1930 in San Francisco. It prides itself in having a stable and well-qualified team of investment professionals, most of whom have spent their entire careers at Dodge & Cox. Ownership of Dodge & Cox is limited to active employees of the firm. Currently there are 75 shareholders and 271 total employees. It is a mature fund management business. Kevin emphasised the point that Dodge & Cox is independent, no absentee ownership, no parent company to report to, so not forced to do anything. This is a great contrast to Merrill Lynch, which is owned by Bank of America. Dodge & Cox is solely in the business of investing clients' assets. Apart from the San Francisco office, it only has one small client service office in London. So all its staff are based in the single office in San Francisco. It offers a focused range of strategies (I tend to like fund managers with a small, focused range): US equities Non-US equities Global equities: combination of the above two US Fixed Income Global Fixed Income US Balanced (combining equities and fixed income) Active vs Passive This debate continues to rage on. Kevin and Dodge & Cox are undoubtedly in the Active Managers camp. His comments? Active managers have been overly criticised for high fees, the focus on (comparing to) average active managers return is a mistake. Dodge & Cox wrote an article on the characteristics of good active managers. These include: 1. Low turnover 2. Experienced 3. High active share. Passive is really a Momentum strategy, buying more on the way up. He used the dotcom bubble as an example: in 1998 the tech sector accounted for 45% of S&P, and index trackers would continue buying more of tech companies as their weightings in the index rose. Only to see the dotcom bubble burst until 2002. What is important is to focus on performance after fees, he comments. I 100% agree with this point. Dodge & Cox is a value-driven fund manager. Value as a style has fallen out of favour with investors over last few years, as the bull market continues to rise. Dodge & Cox continues to stick to what it has done over last 88 years, without wavering. Value Defined It is always good to get under the skin of a manger to understand better what they mean. Kevin defines the firm's Value Investing as "what you thing it's going to be worth in the future. It can be strictly metric based, such as PE ratio. It can also be valuation relative. You would want to avoid something with very high premium built in the price, as it may not be sustainable." So Dodge & Cox sees value in a slightly different way to Warren Buffet. It uses four investment hypotheses: Above Average Growth, Compounders, Cyclical or Asset Play, Deep Value or Turnaround. Warren Buffett's style is probably more the first two hypotheses. Risk Management Over the years I have learnt to appreciate that the best fund managers are also the best risk managers. Dodge & Cox has a systematic way of analysing risks, under the six headings of Operational, Macroeconomic, Commodity, Financial, Technological and Political/Legal Risks. These are used to assess what will cause the future outcomes to disappoint. Investment process Dodge & Cox has a tried and test investment process, run by a very experienced team. I posted some very specific questions to Kevin, his comments are as follows: Schroders as a value manager We as a manager do not worry about what other fund managers do. My impression is they have an excellent reputation, has value orientation. It may have lots of funds. On the question of the use of the word Recovery in Schroders global Recovery Fund: "There can be an element of marketing. This might define value in a more narrow way." Coca-Cola "it is a good business, not a lot of growth, highly priced. We don't own any Coca-Cola stock. Maybe when its PE is 13 it becomes interesting to us." Amazon "A remarkable company, high valuation makes no sense to us. However what it does influences our thinking on other retailers. Retailers like Sears and JC Penny have been in decline for years. Macy's also struggling, not to the same extent. Walmart and Target have done better in response to the changing business environment, the online/offline mix strategy is a good one." Its AWS (Amazon Web Services) also influences our thinking on other tech companies like Microsoft." "of the FANGs, we only own Google" Dell Dell just came out with its update, showing 9% turnover growth and doubling operational losses, so I posted to Kevin. "Dell went largely private, had a series of corporate actions over last 2 1/2 years. Laptops have low margin, the profitable part is server/other services." Portfolio diversification As a wealth manager I am very sceptical of funds with 20% weighting in one stock (Naspers), as I question their risk management and diversification. "We do not have more than 5% of portfolio in one holding. In our Global Stock Fund, we probably will not exceed 3%." Its original (US) Stock Fund has an enviable track record of annualised 9.55% return over 20 years, outperforming S&P500. Over 10 years a respectable 7.71% after fees. The Global Stock Fund, which South African investors can access via Glacier Global Stock Feeder Fund, has done annualised 13.26% in USD over last 5 years. The time was just too short, if there is an opportunity I would come back again. At the end of the meeting I asked Kevin to take a photo together. He agreed as a gentleman.
If you wake up in the morning, look in the mirror and think, ‘Wow, my family is lucky to have me’ then congratulations, your self-esteem game is strong. But, many of us don’t tend to give it much thought. We take for granted that we’re able to spend time with and provide for our families. And this, in a nutshell, is the importance of life insurance.
If you had to stop and think about it, the feeling that comes with being able to look after your family and your dependants is pretty amazing. You get to show exactly how precious they are to you by keeping them safe and comfortable. But, life can be about as unpredictable as the quality of aeroplane meals, and you don’t know for sure that you’ll always be around to look after them. This is where life insurance comes in. Life insurance gives you a way to make sure that your dependants stay looked after if anything should happen to you (touch wood). A Closer Look at Life Insurance Life insurance is a type of insurance cover that pertains specifically to your life. Should you pass away unexpectedly while you are insured, your policy would pay a sum of money to your family. Essentially, you decide how much cover you need, and the length of time you might need it for. You then pay monthly premiums for the length of your policy. This gives you the peace of mind that comes with knowing that, if something should happen to you, your family would stay financially stable. Life insurance is exceptionally valuable if you have: Dependants If you have children or a partner relying on your income, life insurance is vital. This will let you enjoy your life with them without having to worry about what would happen if you were to pass away. It is also important to consider life insurance for your partner. The loss of an additional income or even the time contribution of a homemaker would certainly be felt. A Mortgage The last thing you would want is for your family not to have a place to stay if you were to pass. If you have a mortgage, a life insurance claim could pay this off, ensuring that your loved ones will always have a roof over their head. Life Insurance Means Total Peace of Mind When you wake up tomorrow morning, take a look in the mirror and think to yourself that your family is lucky to have you, and you’re lucky to have them, too. And, because of this, you should enjoy the time that you have with them and not spend a second worrying about how they would cope if you were to pass away. Get a quote for your life cover, please contact Kevin or Ray in our Life Department, email [email protected], tel (011)658-1333 Source: Hollard We at Daberistic always strive to get our clients back into the same position as they were before an accident. So we assure you in walking the journey for all valid claims by offering support and assistance until the claim is finalised. We, in partnership with our service providers who have dedicated legal departments assisting in 3rd party claims, will try to recover their costs (repair cost) and your costs (excess) back from the third parties insurance company or from the 3rd party themselves. When submitting the claim it is thus imperative that you provide the following information regarding accident:
Also, you can reach us as Daberistic on the following emergency number: ?
Source: Jan Prinsloo (Daberistic Short-term broker) Discovery Vitality rewards you for living well by encouraging you to exercise regularly, eat well and do relevant health checks.You start your Vitality journey at Blue Vitality status. Every time you do healthy activities, like going for a health check, buying healthy food and getting physically active, you can earn Vitality points and increase your Vitality status.
Here's a few things you need to know about earning Vitality points and increasing your Vitality status:
Source: Discovery |
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