Innholdsfortegnelse for 8/06/2021 i Finweek - English

this edition of finweek includes the winter issue of Collective Insight, in which several contributors look at the accessibility of alternative investments to retail investors. Not to single out any one of the stellar contributions, I want to focus on Chris Hart’s solid argument for the reimplementation of the Section 12J tax-incentive scheme. It lapsed at the end of June by National Treasury. But first, a step back. Following years of economic underperformance in South Africa, fuelled by rolling power blackouts, rampant patronage (which skims off scarce resources for purposes of unproductive, conspicuous consumption), corruption and an oligarchic private sector, the domestic economy needs urgent innovation initiated by the government. To be fair, some green shoots in terms of reform have been sprouting: increased reliance on private capital to generate…

tiger Brands began as a family business and is now a leading African manufacturer of branded food, home and personal care products. As one of the largest marketers of fast-moving consumer goods (FMCG) products in Southern Africa, its footprint extends across the African continent and beyond. Share price history Tiger Brands abandoned its ten-year bull trend in 2018 when investor sentiment took a dive after the SA National Institute for Communicable Diseases announced in March of that year that its investigation had traced the origins of the listeriosis disease, which claimed about 200 lives, to one of Tiger Brands’ meat processing plants. The cold meat polonies processed by Enterprise Foods, which is in the Value-Added Meat Products (VAMP) business of Tiger Brands, was identified as the culprit. Current outlook The…

humans are meaning-making creatures. We see patterns where there are none; create inferences where there are only associations and distil intent where there is only coincidence. Making meaning is why we have both religion and science: two different fruits of the same tree. A tree we managed to climb down from to create the complex and interconnected world we live in today. Investing and finance are as built on myth as any other part of human life. Money is a myth. We choose to exchange goods and services for pieces of paper, and these days, bits and bytes moving from my account to yours. Money has no intrinsic value beyond what we assigned it. That doesn’t make it any less useful. It makes our complex lives possible; and it is…

exchange-traded funds (ETFs) don’t fit comfortably into the alternative investments box because the majority of them invest in stocks or bonds on listed exchanges, which actually makes them pretty mainstream. However, lazy thinking and a comfort with large active managers in South Africa has meant they are still mostly used by big institutional investors, hedge funds and sometimes begrudgingly by stockbrokers to increase market exposure in private client stock portfolios. What is an ETF? ETFs are collective investment schemes (CIS) which trade on a listed exchange. They usually track well-recognised and understood stock indices to allow investors to replicate this performance. They are extremely low cost, transparent and very liquid. They are well-diversified, offer targeted asset exposure, and particularly in SA are hard to outperform over the longer term (less…

hearing the term “synthetic investments” for the first time will probably remind you of past structured products, or make you think of someone who lost money through geared exposure in a portfolio. To understand how to use synthetic investment instruments, it’s important for investors to get to grips with the mechanics of this investment option. When it comes to investments, synthetic instruments replicate the return of underlying investments, but the returns are created by using a combination of financial instruments, such as options or futures. To take it one step further, if a fund manager is trying to replicate a benchmark, he has two options. First, to purchase the physical stocks or underlying asset to replicate the benchmark or, second, to use synthetic exposure to replicate the benchmark. When used…

the South African financial markets are unsurpassed in Africa and rival those of many developed markets. However, over the past few decades, the SA financial markets have become stale. There has been a dearth of investable new listings on the JSE and capital markets remain dominated by sovereign bonds with limited credit. Notably, they have not kept up with developments and innovation that have manifested in other rival markets. This has led institutional investors to seek out more innovative, growth and impact-oriented strategies in the unlisted capital market space. More importantly, the promise for SA’s much-needed job creation and market innovation lies much more in the small, micro and medium enterprises (SMME) space than it does in the mature markets represented by our large-cap, listed companies. Investors can look at…

US INFLATION Rise a concern US inflation continues to come in higher than expected, even higher than the Federal Reserve expected, according to the latest Federal Open Market Committee minutes. The US data continues to suggest their inflation is transitory – once again the second-hand vehicle market contributed a third to the non-core inflation increase. But that doesn’t mean this rise in inflation is not without risk. The Fed is watching but doing nothing, which by all accounts is the right response. However, if we start to see inflation moving into wages, then it can become structural, and the Fed will fall in behind the curve and will need to increase rates in a hurry. Of note, South Africa’s local inflation slowed, and we have a lower inflation than the…

About teeth and age This issue’s isiZulu word is a number: amashumi ayisikhombisa nambili. Amashumi ayisikhombisa nambili is 72th. Yes, 72th. If you are um’Zulu or an isiZulu-speaker, you’re probably shouting: “This Melusi hack is crazy. Amashumi ayisikhombisa nambili is 72.” Others are shouting: “This Melusi idiot is wrong again. There is no such thing as 72th. It’s 72nd.” Oh, ye linear thinkers. Yes, amashumi ayisikhombisa nambili is traditionally 72, however, we are operating in the realm of ANC punnery here, which operates at a level of numerical and linguistic genius that linear thinkers cannot even begin to comprehend. This genius was demonstrated in a poster, where my comrades combined 72 and tooth to arrive at 72th because Comrade Kgalema Motlanthe recently turned 72, which means he is getting long…

even if you have never heard of it, DeFi (for decentralised finance) is very much part of the world we live in. In short, decentralised finance uses new technologies like blockchain that avoids traditional financial intermediaries like brokerages, exchanges or banks to provide financial services. What are the benefits? Consumers and small businesses lose up to 3% of a transaction’s value when using a credit card. Remittance fees are up to 7%. It takes days to settle a transaction. DeFi can remove all of these inefficiencies. But talking about DeFi almost requires learning a new language. A new paper by economists Campbell Harvey, Ashwin Ramachandran and Joey Santoro entitled “DeFi and the Future of Finance” provides a valuable synopsis of the building blocks of DeFi: blockchain, cryptocurrencies, smart contracts, oracles,…

BUY SELL HOLD Cashbuild was hit by the recent rioting with about 10% of the company’s stores impacted. But stores should be back to full operations and the latest fourth quarter operating update saw revenue up 38%. This is of course skewed by the base effect as it’s compared against results in 2020. The same quarter in 2020 saw revenue down 23% over 2019. So overall they’re ahead of 2019 performance and the financial year to June 2022 should be strong. The economy is opening, and government reintroduced the R350 unemployment grant until March (this adds some R3.5bn into the economy every month, some of which will be spent at Cashbuild). Further, the rebuilding after the riots of July will benefit the company in the smaller retail spaces. Cashbuild’s forward…

growing up I had a passion for listening to 80s pop music. But not everyone liked being part of the crowd and so “alternative music” was born and became a thing. It seemed so much “cooler” (80s slang) albeit a bit “darker” than pop as the artists brought out the wilder side of music. It was different and different somehow seems more exciting and mysterious, but different is not always properly understood or appreciated. A little like today in the investment space, traditional run-of-the-mill investing is familiar to the crowd, but the appeal and mystery of alternative investments are certainly gaining traction. The perception of alternative investments is that they tend to use complicated investment structures, calculations, methodology and assumptions and hence require much more understanding before venturing into this…

people have traded commodities for millennia, long before the advent of formal financial exchanges. Amsterdam (notorious for the tulip mania) was one of the earliest formal commodities exchanges in the 16th century. Osaka, in Japan, was the first to trade commodity futures (rice) in the 17th century. A hundred years later, formal commodity futures exchanges began trading in the US (agricultural contracts on the US Chicago Board of Trade in 1848) and in England (metals on the London Metals Exchange in 1877). Commodities have been easily tradeable since the 1970s through a broad range of commodity futures. Since 2000, listed commodity derivatives such as exchange-traded funds (ETFs), exchange-traded notes (ETNs) and exchange-traded commodities (ETCs) have made the purchase and sale of individual commodities more easily accessible to all investors. The…

the financial planning industry has been on a drive to professionalise over the best part of the past two decades. One catalyst for this has been the introduction of the Financial Advisory and Intermediary Services (FAIS) Act in 2002. This act regulates the rendering of financial advisory and intermediary services to clients. Its main objectives are to protect the interests of consumers and to professionalise the financial services industry. There is still a dearth of certified financial planners in South Africa, fewer than 4% of practising advisers are certified financial planners, so the process to professionalise the industry remains an ongoing one. Is there any evidence to suggest that this professionalisation is working for clients? One way to measure this on the investment side is to look at where clients’…

with the first half of 2021 now on its side, I thought it might be a good idea to look at a few general themes that were discussed as we made our way into 2021, and more specifically, to assess whether certain adjustments may have to be considered. The US may fall behind in 2021 Most experts believed that US companies could possibly fall behind their international peers. This view was based largely on the fact that the US (S&P 500 Index) was trading at valuations that were not only considered to be too expensive, but also at levels that were not seen in decades. Let’s use the cyclically-adjusted price-to-earnings (CAPE) ratio for the S&P 500 as an example. Up until the end of June 2021, the ratio of US…

when we look at what happened recently in our country with all the looting, it might leave us totally disappointed. I do not want to become entangled in politics, but I wish to add that we are all very well aware that the higher the risk, the higher the return could be, but there is in fact a certain point where we have to use common sense and think out of the box. If you are an investor looking for international exposure in your portfolio, there are various options of exchange-traded funds (ETFs) available. But what happens if you want to invest in a specific country or region? It’s then that you could consider a country-specific ETF. There are a number of regional and country-specific ETFs available. Let’s take a…

PRINT EDITION SUBSCRIPTION OPTIONS*: 7 ISSUES (3 MONTHS) = R226.80 13 ISSUES (6 MONTHS) = R374.40 25 ISSUES (1 YEAR) = R675.00 Offer expires on 31 August 2021. *Includes all postage or delivery costs, South Africa only. TEL: O87 353 1305 SUBS@FINWEEK.CO.ZA DIGITAL EDITION SINGLE ISSUE = R28.80 1 YEAR = R608.40 Offer expires on 31 August 2021. BUY NOW AT…

“MANGO WILL GO INTO BUSINESS RESCUE.” – Thomas Kgokolo, interim CEO of South African Airways, told eNCA that SAA’s subsidiary Mango Airlines will enter into business rescue. He said the airline is currently in consultation with its key stakeholders in terms of how it can manage the process. Kgokolo said some Mango staff are still awaiting delayed salaries and that this issue should be addressed in the coming weeks as part of a R2.7bn bailout given to SAA subsidiaries. SAA exited business rescue in April after a lengthy process that reduced its workforce by almost 80%. “Are we living up to that bar?” – Former president Kgalema Motlanthe said as the supreme law of the land, the Constitution sets the bar for what we should live up to and through…

shareholders in Anglo American Platinum (Amplats) have rhodium to thank for the R175 per share interim dividend declaration – equal to 100% of the R46.4bn record headline earnings the Anglo American subsidiary reported last week. The metal was priced as high as $30 000 per ounce during the six-month period and therefore comprised 44% of total revenue – an astonishing contribution as Amplats is expected to produce 4.2m to 4.4m ounces of total platinum group metals (PGMs) in the current financial year. Can rhodium be expected to continue at this clip? Amplats said in a presentation that the 72 000 oz rhodium deficit of last year would become a small surplus this year before returning to a fresh deficit in 2022, albeit of a much smaller scale than in 2020.…

BUY SELL HOLD Truworths is an apparel retailer with over 896 stores across South Africa and around 50 stores in other African countries. In December 2015, the group bought a UK-based youth footwear retailer called Office for R5.5bn. Truworths’ share price broke out of its long-term bull trend in July 2019 and incurred a steep drop during the Covid-19 sell-off in March 2020. After retaining support at 2 225c/share, the share rebounded and even traded out of its bear trend in January 2021. In February, Truworths announced its ambitions to open a new chain to enter the lower end of the SA fashion market and take on Mr Price, Jet and Pep. CEO Michael Mark is set to retire soon, and the company has started the process of implementing the…

in this winter 2021 edition, we look at the world of alternative investments. To many investors, alternative investments have a novel, “the-road-less-travelled” quality about them. As the assortment of articles shows, the term is a catch-all of sorts. The world of investments is dynamic, brimming with ideas, and investors are constantly grappling with the extent to which they should ride with the times – and break new ground or hold back the tide and stick with the tested and tried. Today, alternative investments might refer to the volatile and untested forestry assets, cryptocurrencies, non-fungible tokens (NFTs) which are unique digital assets with no tangible form, fine art, vintage whiskies and rare wines, as well as the more familiar products but still not yet mainstream or readily accessible to all investors…

in the current environment of heightened uncertainty, investors are rethinking the traditional asset allocation strategies to diversify their portfolios and capture other sources of returns. Alternative investments play a valuable role in a diversified portfolio as they offer investors improved diversification because of low correlations with traditional asset classes, access to a wider menu of investment opportunities and the potential to generate an enhanced return – often while fulfilling a joint mandate of making a positive social impact. A broad distinction can be made between two families of alternative investments. The first refers to the long and short risk exposures as used by hedge funds on traditional publicly-traded financial assets. Hedge funds operate in public markets but use tools such as leverage (the ability to use borrowed capital to amplify…

when we use the term “alternative investments”, we generally think of them as investments that explore new asset classes, or employ complex derivative strategies or investment processes. But it has become clear that how we invest has a wide-ranging impact – touching on the environment, on society, on inequality, on governance – whether we do so intentionally or not. As such, a whole new category for investing is one that explores the opportunity to add value “intentional” outcomes for investors and generate far more than just good returns. “Investing for good”, “ESG”, or impact funds are just such investments. The more that investors understand these strategies, the more it becomes evident that this mindset must underpin conventional investing. This is why. Retail investors are often dazzled by investments or by…

unlisted or alternative funds, including the various subsets of infrastructure and development and impact funds, have traditionally been unavailable to retail investors, other than some access to private equity (PE) funds by high-net-worth individuals (HNWI). The limitation of PE to HNWIs is partly because PE funds are generally perceived as riskier and more illiquid. Yet a real opportunity is being missed – not only could the man on the street benefit from the robust, steady and non-correlated returns generated by infrastructure and development funds, but also the country could benefit enormously from the increased pool of capital needed to expand and repair critical infrastructure in the country and boost the economy. Quite simply, opportunities need to be opened to retail investors. At this stage, according to Asisa’s fund classification, except…

amidst the current focus on environmental, social and governance (ESG) investing, the issues that are garnering less attention and comment include, amongst others, “green washing”, the moral imperative, an emergent focus on the social element of ESG, the surprisingly powerful role of the incumbents, and the hidden environmental cost. The acronym ESG is being used interchangeably with sustainability, the circular economy, and the UN’s principles of responsible investment, all of which have combined to widen an already exceptionally broad investment strategy. “Greenwashing”, the term given to the disinformation spread by organisations wishing to appear more ESG-friendly than they really are, has transformed from nefarious communication campaigns into the relatively obvious process of capitalising on the term ESG for simple economic gains. Investors need to dig deeper to ensure that the…

one of the features of the markets over the last two years or so has been the rise in cyclical stocks. It’s worth digging deeper into them so that investors understand the potential duration and risks. First off, cyclicals are those stocks that experience boom and bust periods and are predominantly miners and farmers. Most businesses have steady growth that ideally would be increasing from year to year as they raise prices and volumes and improve their margins – all of which contributes to higher profits. An important factor for non-cyclical stocks is that they mostly have pricing power in that they can decide on the price they’ll sell their goods for, thereby having some control over margins. This isn’t always totally the case; price wars or newer versions of…