Give us some hope, Vic

Finweek English Edition - - To My Mind - J VAN HEER­DEN

MANY OF YOUR READ­ERS sub­scribe to Fin­week for fi­nan­cial ad­vice. Last year, Vic de Klerk started his se­ries on pref­er­ence shares by say­ing that, the­o­ret­i­cally, the prices of pref shares shouldn’t fluc­tu­ate. That sounded right, be­cause the div­i­dends are largely guar­an­teed.

Then in April this year he con­ducted an anal­y­sis of how much bet­ter the re­turn on pref shares is, es­pe­cially af­ter tax. Un­for­tu­nately, he didn’t in­clude the re­bate al­lowed to older tax­pay­ers on in­ter­est in­come.

In the Fin­week of 23 Au­gust he tried to en­cour­age old in­vestors who have had to look on over the years as the prices of pref shares kept fall­ing. He re­ported that pref shares are the best place to park your money. Up to Au­gust 2008, when De Klerk did his anal­y­sis, many pref­er­ence shares had al­ready fallen sharply from their is­sue price. For ex­am­ple, Absa was down from R1 000 to R899,10 – that is, 10%.

For ex­am­ple, if we com­pare the cur­rent sit­u­a­tion with De Klerk’s anal­y­sis in Au­gust we find:

Ob­vi­ously, a re­turn of 11% to 13% isn’t much if the value of the in­vest­ment falls by 10% to 20% ev­ery few months, even if the tax ben­e­fits are taken into ac­count.

Since old in­vestors like us can now earn more than 12% on a fixed de­posit, does De Klerk still think pref shares are the best place to park our money? Does he think the de­clines have now come to an end, or what other good news can he give us old in­vestors? Can he per­haps ex­plain why the shares keep fall­ing de­spite his as­sump­tions?

Come along, Vic. Here’s an op­por­tu­nity to give old in­vestors some hope again.


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