In­vest­ing in a com­plex world

With cur­rent in­vestor con­fi­dence lows and a mar­ket that has been lack­lus­tre, de­cid­ing where to in­vest in 2019 is not easy. In this edi­tion, we take a look at funds to con­sider given the cur­rent un­cer­tainty.

Finweek English Edition - - Fundfocus Introduction - By Leon Kok Leon Kok

this year started on a high as var­i­ous com­men­ta­tors talked up the Ramaphosian “New Dawn” fol­low­ing Ja­cob Zuma’s gross mis­rule, which nearly brought the coun­try to its knees. No doubt Pres­i­dent Cyril Ramaphosa faces huge chal­lenges, but lit­tle com­fort can be ex­pected in SA in 2019 un­less he rad­i­cally re­po­si­tions on a host of struc­tural is­sues; ac­cel­er­ates the fight against cor­rup­tion and ANC pa­tron­age; and, at the very least, con­tin­ues to re­duce the size of his Cab­i­net, which costs the coun­try R163m in salaries alone.

Ir­reg­u­lar pub­lic ex­pen­di­ture this year, for in­stance, is a mon­strous R51bn and an in­dict­ment on min­is­te­rial com­mit­ment and com­pe­tence. Sadly, there is far too much talk and too lit­tle ac­tion.

The In­ter­na­tional Mone­tary Fund (IMF), in fact, was spot on in its lat­est warn­ing that SA’s eco­nomic growth will not ex­ceed 2% in the medium term be­cause of con­tin­ued ru­inous man­age­ment and pol­icy un­cer­tainty. It ex­pects growth to be at 1.4% in 2019, down from its April pro­jec­tion of 1.7%, and has set out a com­pre­hen­sive list of what’s re­quired.

Among ma­jor mid­dle-in­come coun­tries in sub­Sa­ha­ran Africa, SA has the low­est pro­jected growth rate for this year, af­ter Cameroon and Zam­bia, which are both pro­jected to come in at 3.8%.

The dif­fi­cul­ties of fore­cast­ing the prospects for the JSE All Share In­dex for next year are not sur­pris­ing, given the cur­rent low lev­els of in­vestor con­fi­dence and the mar­ket hav­ing re­mained rel­a­tively flat since June 2014. More than half of in­vestible shares have de­clined by 18% or more this year alone.

True, not all of this value de­struc­tion is do­mes­tic. Some 60% of the MSCI Global In­dex is cur­rently in bear ter­ri­tory, though for­tu­nately an­nu­alised in­flows into the ma­jor US mu­tual funds re­main fairly sta­ble at around $260bn.

A sig­nif­i­cant do­mes­tic bolt-hole fea­tured in this edi­tion is Ross Biggs’ Pru­den­tial Div­i­dend Max­imiser Fund, which has re­turned an an­nu­alised 18.4% dur­ing the past 15 years and shown how in­vestors can ben­e­fit from an in­vest­ment ap­proach that fo­cuses on com­pa­nies of­fer­ing both a sus­tain­able div­i­dend yield and long-term growth in div­i­dends.

A fur­ther high­light is New­lands-based in­vest­ment house PPS In­vest­ments’ launch of three new Reg­u­la­tion 28 com­pli­ant sin­gle man­age­ment funds – in part­ner­ship with three of the coun­try’s most rep­utable bou­tique as­set man­agers – to aug­ment its ex­ist­ing suite of funds. As cus­tom-built ex­pert-man­aged bou­tique funds, they prom­ise sig­nif­i­cant ad­van­tages over larger funds in the gen­eral realm of as­set man­age­ment. They’re worth look­ing at.

On the broader African front, we run a fas­ci­nat­ing re­view on Ca­van Os­borne’s R3.6bn Old Mu­tual African Fron­tiers Fund. You may be scep­ti­cal of African prospects in gen­eral, but note that Os­borne’s fund gen­er­ated a 14.3% re­turn in US dol­lars dur­ing the past year. It’s wor­thy of con­sid­er­a­tion by more ag­gres­sive high-net-worth in­vestors, in­sti­tu­tions and trusts seek­ing high re­turns off low bases.

Prospects for global shares may seem ques­tion­able to some, but our reg­u­lar off­shore mar­ket com­men­ta­tor, Paul Hansen, isn’t overly per­plexed, fore­cast­ing global growth next year of be­tween 3% and 3.5%, de­pend­ing on how long the cur­rent slow­down in Europe, China, and next, the US lasts. He be­lieves un­re­servedly that sound global eq­uity funds are the place to be. And if in­deed you do wish to di­ver­sify off­shore with a sound safety net and tax-ef­fi­ciency, you might look at Lib­erty’s re­cently in­tro­duced Ad­vanced Global Eq­uity T1 Port­fo­lio. Also pro­filed in this edi­tion, it’s a struc­tured prod­uct that’s sim­ple, fully trans­par­ent and al­lows in­vestors to see what they get.

Other in­ter­est­ing fea­tures come from In­vestec’s Paul Hutchin­son and Coro­na­tion’s Christo Lin­eveldt. Both re­late to smart re­tire­ment in­come pro­vi­sion. Hutchin­son tells of his in­vest­ment house’s in­sight­ful find­ings in a re­cent in-depth study, and Lin­eveldt out­lines how head­winds can con­vert to tail­winds in ap­pro­pri­ate port­fo­lios over the longer term.

Fi­nally, I take this op­por­tu­nity to thank both our in­sti­tu­tional spon­sors and read­ers at large for their won­der­ful sup­port dur­ing the past year. They’ve con­trib­uted enor­mously to in­vestor in­ter­ests across the spec­trum.

No less im­por­tant, thank you too to the fin­week team for their com­mit­ted, high-qual­ity and in­dis­pens­able work. Wish­ing all a won­der­ful fes­tive sea­son. ■ is an in­de­pen­dent writer on pub­lic pol­icy and in­vest­ment mar­kets.

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