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Monhla nhlanhla investments for beginners

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FOREX PROFIT BOOSTER REVIEWS

Sasfin Wealth offers you one asset classthe world. We are no ordinary boutique asset manager. Our range of top-performing and award-winning unit trusts are designed to return value to the most discerning of retail and institutional investors. To find our more contact Martin Hyde on or martin. This advert is general in nature and is not advice. Sasfin Wealth accepts no liability for errors or changes.

All data and examples are given as indicators only and are not guaranteed unless confirmed in writing. Past performance is not necessarily indicative of future performance. As clients are responsible for their decisions, they should obtain independent advice before taking any action. The changes which took place in the calendar year are summarised in the below. Sources of performance Multi-Asset class portfolios build and implement their investment strategies based on a multitude of methods; the most popular being economic macro research; asset allocation modelling strategic and tactical ; relative asset class valuation; assessment of market risks; security valuation; portfolio construction and market hedging strategies.

The portfolio manager will also use the asset class exposures to manage an overall risk strategy. With both global and local backdrops unfavourable, asset class returns were poor across a broad range of asset classes and geographies. South African markets mirrored global markets in terms of poor market performance, which was made worse by the negative domestic economic news developments.

Industrials INDI25 returned Resources RESI20 bucked the trend, with a Holding an underweight position in equities and listed property as well as having a full allocation to domestic government bonds added value. The worst performing manager for the year was Coronation followed by Bridge. While these two managers had a relatively high exposure to equities, of all the managers in the SA BIV category they had the highest exposure to listed property.

The Global Best Investment View significantly underperformed the domestic mandates with a 7. For the year, the majority of the managers in this category kept their domestic asset allocation relatively stable with the exception of Ashburton who increased their allocation to equities by 7.

In an environment of tough equity markets, bank subordinated debt fared well. Rezco reversed a poor by being one of the strongest performing managers in returning 1. While seemed to be the year of the multi-manager with the two best performers in the Global BIV category being Old Mutual Multi-Managers and Momentum Multi-Managers, was a reversal of fortunes for these two multi-managers. Alexander Forbes Investments ranked fourth and fourth in the two surveys respectively, while Investec ranked third and fifth respectively.

Holding underweight positions in domestic equities and property and being overweight cash added to outperformance. Within offshore, global equities, being overweight IT and healthcare sectors and underweight energy benefitted relative to peers. Their allocation to commodities, specifically Palladium also added to returns in Kagiso was the lowest at According to the International Monetary Fund, global economic growth for was 3. The moderation in global growth was due to a slowdown in both advanced and emerging economies.

In the advanced economies, growth was weaker in many countries except in the United States where corporate tax cuts boosted the economy. In emerging markets, the slowdown was driven by weaker growth in Asia especially China , Russia, emerging Europe, Nigeria and South Africa.

In addition to the unfavourable impact of lower growth, higher inflation and increasing interest rates, portfolio returns were negatively impacted by trade policy decisions and geopolitical tensions. The four interest rate hikes by the US Federal Reserve were more impactful for financial market performance. They led to the appreciation of the US dollar against other currencies and a sell-off in risky assets, including emerging market bonds and equities as investors saw better return opportunities in the US than elsewhere.

Brexit the withdrawal of the UK from the European Union negotiations are ongoing; however, the outcome remains uncertain. The UK is scheduled to leave the EU on March but several steps need to take place before then, beginning with a parliamentary vote on Plan B on 29 January.

Currently, both revoking Article 50 — the provision that triggered Brexit — and extending the negotiation period seem impossible. In addition to Brexit uncertainties, Italy continues to battle with high debt levels which are higher than Eurozone prescribed levels.

Consequently, the uncertainty that had a negative effect on the UK and Eurozone stock markets and trade in will continue in Political and policy uncertainties in South Africa remain a risk Being a small open economy, the South African economy and financial markets are always impacted by global factors, which have been largely negative for the year As was the case for the past several years, domestic, political and policy uncertainties reduced consumer and business confidence, which weakened economic activity and introduced financial market volatility.

The February budget review and the October mini-budget both disappointed, showing a rise in public debt with low economic growth. The SARB cut and hiked interest rates in one year From an economic point of view, inflation declined to a low of 3. However, the rise in oil prices and the depreciation of the rand against the US dollar led to several increases in petrol prices, pushing inflation higher over the course of the year.

In fact, the economy entered a technical recession as GDP growth contracted by 2. We expect growth for as a whole to be between 0. Return environment shifted from low expectations to negative in With both global and local backdrops unfavourable, asset class returns were poor across a broad range of asset classes and geographies. ACWI , returned With poor returns in equities, bonds provided better returns as they usually perform better during times of uncertainty.

Ashburton Investments is fully invested in the outcomes of our clients. Through providing access to fixed income and private markets for diversified sources of returns, like private debt, impact, renewable energy, mezzanine finance and private equity, we have committed to helping our clients achieve better results for themselves, and all those who depend on them. Speak to our specialist institutional distribution team on or email institutional ashburtoninvestments.

The statistics represent the various categories that portfolios are represented in but only for those managers that are open to new investments. Note: The statistics above only include those portfolios that are investable, in other words those portfolios that are closed to new business will be excluded from the calculations.

This may lead to volatility of returns in the short term less than one year. Consistent outperformance of our benchmarks, since inception in The benchmark for our full discretionary funds is calculated in-house, using FTSE free market indices and estimated peer group weightings. Objective: The portfolios are balanced multi-asset class portfolios with exposure to both global and local assets, subject to the restrictions imposed by Regulation 28 of the Pension Funds Act and aim to maximise long-term more than 5 years capital returns.

Objective: The portfolios are balanced multi-asset class portfolios with exposure to global and local assets. Objective: The portfolios are balanced multi-asset class portfolios, subject to the restrictions imposed by Regulation 28 of the Pension Funds Act and aim to minimise the probability of short-term less than one year capital loss while targeting long-term more than five years capital growth.

Invest in a partnership that you and your employees can depend on The Alexander Forbes Retirement Fund AFRF is an umbrella fund solution brought to you by leaders in employee benefits and holistic financial well-being solutions. Helping clients achieve a lifetime of financial well-being. Investors all over the world seek to maximise their investment outcomes by choosing the best investment fund.

In South Africa alone, the investment opportunity is vast, with in excess of 1 unit trusts on offer. So why is choosing the correct fund and sticking with an investment strategy important? The various approaches taken by investment managers across the country are evident when comparing how differently funds with similar risk profiles and benchmarks can perform.

These different performance outcomes can cause investors to switch between funds depending on their performance during a particular cycle. This makes the assessment of which investment managers are able to provide investors consistently with superior returns crucial, but is also no easy feat. Most professional investors would agree that investing is a mix of luck and skill.

If one believes that luck is fleeting, then it is manager skill that should be central to any investment decision. Measures based purely on past performance, or even riskadjusted performance, often fail to differentiate between the impact of skill and luck in investment outcomes.

Why then do the most prestigious awards that aim to recognise exceptional funds and managers across the country base their assessment on this exact metric? Although the importance of rewarding fund managers that have performed well in the past cannot be disputed, these awards do little to evaluate the level of skill applied that will ultimately determine the chances of success in future.

Active fund managers are primarily rated on their ability to provide investors with returns in excess of a market benchmark. This excess return is commonly referred to as alpha. Often to achieve this, they either overweight or underweight shares against a market portfolio, tilted towards particular styles or risk factors, such as value, momentum, quality or small cap. The reality is that the skill involved in executing this type of strategy is misleading.

The evolution in index-tracking strategies over the past half century has seen the emergence of so-called smart beta funds. These strategies have been available to South African investors for over a decade and have proven to successfully provide investors with access to the benefits of these styles or risk factors in a systematic and cost-effective manner. So if both market returns and returns from factor or style tilts can simply be obtained by investing in a mix of costefficient traditional and smart beta index funds, how do we measure the true value of active investment strategies?

In measuring true alpha generated by an investment manager, one cannot only focus on the returns in excess of a market-based benchmark. The returns generated from active tilts towards pure style or factor-based investing strategies should also be removed from the excess fund return. This will expose the true alpha-generating abilities of the investment manager.

In order to measure this, a methodology called multi-factor regression analysis can be applied. Through this methodology, true alpha is exposed, providing a clear indication of the skill implied in active manager returns over and above those returns that can be derived from simply investing in smart beta strategies. Although one of the main considerations, returns should certainly not be the only metric that investors should be focused on when assessing the ability of their investment to achieve their outcomes.

The volatility of the investment is equally important. The reason for this is twofold — investors prefer a smoother investment return profile and will therefore be more likely to stay invested and reducing volatility in drawdowns can lead to higher returns over time. Another vital element to consider when assessing suitability of an investment is the peak-to-trough decline or loss that an investor is likely to experience during a specific period.

Although it is important to stay invested during times of market turmoil, investors need to avoid situations where they lose significant amounts of capital which forces them to prematurely exit their investment strategy. Last but most certainly not least, the assessment of the ability of a fund manager to consistently generate value is by no means a purely quantitative exercise. It is equally important to consider the qualitative aspects of any investment management house.

The research team should apply a rigorous framework in assessing the ability of fund managers to generate returns within a conscientious construct. The application of these principles will identify managers that exhibit a superior skill — those that consistently achieve superior risk-adjusted returns over the long term. They do this through analysing markets and selecting stocks above and beyond the pure factor or style exposure.

They generate the elusive alpha — within an exceptional due diligence framework — adding real value in the right way. Luck is not replicable, but skill is: so focus on skill when choosing managers. This evidences returns generated from a pure equally weighted factor index strategy against returns from the average equity active management strategies in South Africa. The equal weighted factor index benchmark outperformed the ALSI by 2. It is vital that true value in active management strategies be measured by the returns generated in excess of the market benchmark and the factor style exposure that could be attained simply and cost efficiently.

Putting your pension money to work since Day 1. Coronation manages the savings of millions of hard-working South Africans. Coronation is an authorised financial services provider and approved manager of collective investment schemes. All Rights Reserved. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Information contained therein.

No carve-outs are reflected. Due to differing benchmarks, the portfolios below are ranked by active returns only actual performance less benchmark return and are purely for illustrative purposes. Objective: The portfolios included in this survey represent specialist active actual equity portfolios with various benchmarks.

Due to differing benchmarks, the portfolios below are ranked by active returns only ie actual performance less benchmark return and are purely for illustrative purposes. This survey also include the following two categories: inflation linked bonds and flexible bonds-income. Risk Return. Minimum Return 8. Maximum Return 8. Median Composite Return 8. Composite Dispersion 1yr 0. Composite Dispersion 3yrs 0. Composite Dispersion 5yrs 0. Objective: The portfolios in this survey represent short-term debt securities that are highly marketable and trade in large denominations.

Objective: The portfolios in this Survey represent short-term debt securities that are highly marketable and trade in large denominations. The secondary objective is to reduce the risk of capital loss over any rolling month period. SIM targets low volatility real returns that match the upside return objective e.

At the same time, they target not to lose capital over rolling one-year periods. At the same time, they target not to lose capital over rolling one-year periods SIM targets low volatility real returns that match the upside return objective e. No negative returns over rolling 12 month period No negative returns over rolling 12 month period No negative returns over 1 year rolling period.

Preserve capital over a rolling 12m period. Objective: The portfolios in this survey comply with Regulation 28 and represent products targeted at real returns with a CPI objective. Closer to the truth Our obsession with depth and detail brings greater understanding and better performance. To find out more, visit www. FoHF managers select a number of underlying single hedge fund managers to provide diversification across a range of alternative strategies.

However, while some of these managers adhere rigidly to these fixed asset allocations, others may allow these allocations to drift slightly within certain margins. Strategic Asset Allocation: Although managers included in the survey may have long-term strategic asset allocation targets, they actively manage the asset allocation in an attempt to enhance returns.

The different categories above Low Volatility, Best Investment View and Dynamic represent the different risk profiles of the funds. Old Mutual Multi-Managers Inflation We work to secure a lifetime of financial well-being for our clients. Each person at Alexander Forbes Investments works in the pursuit of certainty, to provide investor excellence through uniquely integrating and amplifying different aspects of investing to achieve investment outcomes.

We build portfolios with a key focus on risk management and reducing potential losses. How to interpret and use this survey LDI is a complex area of investment. Alexander Forbes strongly recommends that investors obtain professional assistance in determining whether a specific LDI strategy or LDI manager is appropriate for them. The guide below is not sufficiently comprehensive to enable most investors to reliably choose an LDI manager without further assistance.

The guide will help investors appreciate the drivers of differential performance between managers and strategies at specific times in the market. The survey provides simple numerical measures that encapsulate the risk these managers have exposed clients to as well as the outperformance they have acheived. Most LDI hedging techniques are based on algorithmic solutions or rules based mathematical techniques , suggesting that ineffective hedging techniques will very rapidly show up in this survey.

The skillset of managers offering low risk solutions, tracking liabilities closely with tight mandate restrictions will generally show up over even short periods such as one year. However, it is always preferable to evaluate these managers over a longer period if this is available.

The period used for analysis should include at least one large shift in yield curves. In addition to focusing on tracking liabilities, some managers target outperformance of liabilities by investing in riskier asset classes such as credit and potentially view taking on the markets. An evaluation of the approach used and the skills of each manager is required to access how likely these managers are to deliver alpha in the future.

The past performance of these managers can be used as part of this evaluation. Longer periods. The exact length will depend on the strategy used, but may require five years or longer. Unlisted instruments may but are not necessarily subject to poor valuations or infrequent valuations by the manager. Many unlisted instruments such as swaps may be valued independently by a counterparty bank, partially mitigating this risk.

Investors also need to consider the time frame over which they measure risk when choosing a manager and more importantly, in setting their mandates, mandate restrictions and portfolio targets. For example, listed companies may need to manage pension fund or other sinking fund risks over a very short period to match their reporting requirements. Pension funds that are valued once every three years, with a larger risk appetite and a desire to target growth could use a longer evaluation period such as three years.

A brief description of the benchmark used is given for each composite. Only similar composites should be compared directly. For example, swap based and bond based benchmarks are not directly comparable. Specific measures Liability outperformance shows how much value, in excess of the growth in liabilities, the manager was able to add for their client. All else being equal, a larger outperformance is preferable. Investors should consider a sufficiently long performance period to smooth over interest, credit and inflation cycles if they are primarily concerned with the longer term performance of their liability hedging activities.

For example, certain investors may require close tracking on a monthly basis, while others may be more concerned with longer term value add. Investors should therefore give adequate attention to manager performance over periods that match their own reporting, risk evaluation and risk tolerance frequency. Consideration should be given to all the stakeholders associated with the liability in reaching this decision. Liability convexity and duration are technical measures of certain liability characteristics.

In general, the larger these quantities are, the more difficult it is to create an effective hedge. Performance is therefore not necessarily comparable between managers with vastly different liability durations and convexities. A typical defined benefit pensioner liability increasing with full inflation annually has a duration of between nine and twelve years at current yields. All else equal, the larger this percentage is, the greater one would expect the long-term outperformance of liabilities to be.

This figure may also reflect mandate constraints regarding the inclusion of credit. Portfolio as a percentage of liability shows the size of the assets managed by the manager relative to the size of the liability the manager is mandated to hedge. All else being equal, the larger this portion is, the easier it is to hedge a liability. This is hence an additional constraining factor on managers. Portfolios in the survey have been grouped into bands expected to offer similar hedging efficacy.

Assuming all else is equal, larger minimum funding levels are preferable. All else being equal, a lower tracking error is preferable. Unfortunately tracking error captures outperformance desirable as well as underperformance undesirable. Where close liability tracking is not essential, the minimum funding level is a superior measure of risk. For example, a manager providing a high degree of outperformance and high minimum funding levels may be a suitable choice even if this manager has a high tracking error.

The risk adjusted outperformance shows the extent to which managers outperform liabilities, adjusted for the tracking error or risk they have introduced. All else equal, a larger risk adjusted return is preferable. The risk adjusted return may, however, be an inappropriate measure for certain investors with specific liability objectives. For example, some risk tolerant investors wish to maximise long-term outperformance of liabilities.

Such investors should focus on outperformance of liabilities in choosing a manager. Other risk averse investors may wish to track their liabilities as closely as possible. Such investors should focus on choosing a manager based on tracking error.

LDI Specific Measures Liability outperformance shows how much value, in excess of the growth in liabilities, the manager was able to add for their client. Nominal bond yields fluctuated dramatically across the quarter, shifting and reshaping in response to a stream of market relevant news flows.

Across the quarter: The finance minister was replaced, with Tito Mboweni taking the reins. The appointment was perceived positively by most commentators. The budget statement was sobering, with a downward revision to growth expectations and a downward revision to projected tax revenues. Globally risk remained elevated with the trade war between the USA and China still unresolved. This introduced external volatility and pressure for emerging markets, including South Africa. Some progress was made between the two sides late in the year, offering some hope.

Meanwhile domestic growth within China has begun slowing. Data emerged to show that the South African economy had moved out of recession. Ongoing discussions and rumours about the dire financial condition and indebtedness of several parastatals, including Eskom continued. The implementation of load shedding during the quarter reminded us all of the importance of addressing the challenges faced within Eskom. Real yields reached the highest levels seen in half a decade during the quarter.

Higher real yields can open up the opportunity to hedge for funds which have not been able to do so in the past. It may be worth re-visiting this topic if you are a decision making agent for an entity with defined liabilities such as a defined benefit retirement fund without existing LDI assets. This will need to be evaluated together with any negative impact the recent equity market declines have had on the specific fund in question.

We recommend discussing this with an LDI expert or your valuator. The rich flow of market relevant data drove material volatility in nominal yields both in level and shape , creating a testing environment for bond managers. LDI hedging does not operate within a vacuum. Many defined benefit funds choose to combine interest and inflation hedging with growth assets, blending the liability risk reduction and growth characteristics of these assets.

This may be required to ensure the fund retains a large enough exposure to growth assets. A reduction in the allocation to hedging assets may require changes to the composition of the hedge. For example, if the fund has become underfunded, the trustees may choose to review the investment strategy used to ensure it remains appropriate to the new circumstances in which the fund now operates. Higher yields also benefit funds transitioning unhedged active members into a hedged pensioner pool, as the transfer and subsequent expansion of the LDI hedge occurs at a higher yield than previously possible.

The movement of the real yield curve was less dramatic than that of the nominal curve. Real yields did still increase by 0. Manager returns were diverse. This is not unexpected, given the broad range of characteristics seen in the participant composites. For example, the credit allocations and benchmark durations vary significantly. The mild volatility in the real curve may have contributed marginally to this dispersion, though we caution against attaching too much confidence in the analysis of the small sample of participant managers.

At times, some LDI managers take nominal positions within their portfolios. This can be done to hedge small nominal risks that arise due to pension increases only being effected once per year rather than continuously. Some managers may also make use of nominal holdings to hedge interest rates without an inflation hedge to take advantage of perceived mispricing between the two markets. Nominal bond section Long dated nominal bond yields rose by 0.

Across the period the curve reshaped dramatically as well. This is a challenging environment that can show up unhedged positions. Participant managers coped well with the challenging environment, but we caution that there are limited conclusions that can be drawn from the small sample of participants. Even with an LDI hedge in place, investors operate within a dynamic set of circumstances and challenges. This underscores the importance of suitable monitoring processes within a fund to trigger appropriate interventions and adjustments.

Over the past 44 years, our commitment to creating long-term wealth for our clients has never wavered. To find out more, call Allan Gray on or your financial adviser or visit www. Objective: The portfolios included in this survey represent liability-driven investment funds with benchmarks expressly referencing investor liabilities. However, as recent fund performances show, this need not be the case.

To do this, it is of course critical to maximise the return on your investments over time — but there are further considerations for Islamic investors. The objective is to avoid investments in companies that cause harm to humans or society. This also rules out businesses within the traditional finance sector such as banking and insurance companies.

And all companies selected for investment need to have closely managed debt and cash balance levels to avoid the payment or receipt of excessive interest. Selecting quality investments with shares priced at a low valuation, and selling these once this value has increased The annual distribution of company profits to all shareholders, in the form of dividends.

For the three years to December , the general equity sector delivered an annualised return of 1. Although the principles are based on Islamic teachings, the underlying ethical framework is ideal for all socially conscious investors seeking robust long-term returns.

Sentio Shari'ah Supervisory Board in conjunction with internal Shari'ah compliance processes. Donated to charities approved by the Sentio Shari'ah Supervisory Board. Sanlam Private Wealth's Shari'ah platform assists with the distribution to charities. Charities who have benefitted in the past includes the Mustadafin Foundation and Gift of the Givers.

The Trust is an independent organisation and is responsible for all charitable allocations. The Trust contributes towards four primary sectors: education, health, social development and poverty alleviation. Donated to a registered charitable organisation for charitable causes in the areas of disaster relief, education, sport and healthcare. This is a peer group which consists of all funds with similar characteristics that have a performance track record of more than 3 years.

Growth in emerging markets EMs is expected to accelerate to 5. The outperformance of the US is likely behind us, as the boost from tax cuts diminishes and household income gains will likely stagnate this year. The reduction in liquidity and tightening monetary policy will also start to constrain economic growth. In Europe, the UK and Germany will see slower growth, but for different reasons.

The UK will be weighed down by the Brexit uncertainty, while Germany is adjusting lower, given the late stage in its economic cycle, with above-trend growth. In emerging markets, China is still adjusting to a change in growth drivers, towards consumption-led drivers, which structurally imply slower economic growth.

In addition, the trade war with the US should have a negative effect on growth, but should be offset by monetary and fiscal stimulus, which the Chinese authorities have embarked on. The balance of risks to this outlook is tilted to the downside, owing to political risks in the US, UK, China and several other EMs holding elections this year.

Political risks necessarily create policy risks, in addition to the ongoing trade wars, Brexit and Italian debt issues. However, we believe that the biggest risk for markets remains the US Fed rate hiking path, which at this point, looks set to deliver one or two hikes, at best, which will not trigger a risk-off trade. Global inflation to stabilise, as a result of a fall in energy prices and stable exchange rates Following a rise in the annual global headline inflation rate, to 3.

DMs are expected to change from 2. US, Eurozone and UK inflation rates are expected to change from 2. In EMs, Chinese inflation is expected to accelerate to 2. Other EMs should see varied inflation dynamics, which we believe will offset each other and leave the EM average stable, below the five-year average. Gradual monetary policy tightening a reprieve for emerging markets With lower and stable inflation dynamics in DMs and EMs, respectively, we expect monetary policy tightening to be more gradual than was anticipated last year.

The US Fed will likely hike once or twice, at most, in , down from three times previously. Markets are pricing a 35 basis point increase, to 2. In EMs, we expect more stable interest rates, compared with the previous year, with fewer countries hiking policy rates. If the ANC maintains or gains more support at the polls, it will be market positive, as it will mean that President Ramaphosa has a clear mandate from the electorate to push through the much-needed economic reforms that will boost economic growth.

We believe this is the likely outcome, so we expect local equities to outperform local bonds. Two aspects that are of concern for markets are the intention to look into prescribed minimum assets for pension fund investors and the nationalisation of the South African Reserve Bank SARB. Will prescribed minimum assets be imposed on pension funds? Talks on tapping into prescribed minimum assets are not new and they seem to resurface around national elections and disappear soon after.

Currently, there are no prescribed minimum assets, for developmental purposes, for pension funds in South Africa. If prescribed minimum assets were to be made into law, it will distort investment outcomes and prejudice clients whose pensions are managed by pension funds. However, we do not believe that prescribed minimum assets will be made into law; however, it remains a low probability event.

Will the SARB be nationalised? As it relates to the nationalisation of the SARB, two aspects need to be separated: ownership, and mandate and independence. The ownership of the SARB does not affect its mandate and independence. In any case, there are other central banks that are owned by their government that are independent in how they achieve their mandated objectives.

Given that the independence and mandate of the SARB is prescribed in the Constitution, changing that will require changing the Constitution, which will be a far more difficult task to do without thorough economic justification. We believe that the SARB will not be nationalised and its mandate and independence will not be changed. Economic growth will marginally recover Given our expectations on the political outcomes, we believe economic growth will recover to about 1.

The recovery is premised on a rebound in household consumption and fixed investment, especially in the second half of the year. It is a wait-andsee before elections in May, with few economic reforms and, as a result, little private sector investment. Even after elections, it will take some time to re-organise government and pronounce and implement policy. Therefore, a pickup of growth is a story of and beyond. The decline in oil prices and slightly stronger rand against the US dollar has resulted in cuts in petrol prices in December and January.

However, market expectations are that oil prices will increase and the rand will remain slightly weaker. Food price inflation will also likely rise as a result of poor rainfall in major maize production regions. These factors will push inflation risks to the upside for the year. What remains supportive of a better inflation outlook is the fact that demand-pull inflation remains minimal. Asset allocation Return expectations better in , but still low The weak asset class returns experienced in are expected to improve in , but remain low, still affected by the tighter Fed monetary policy, weaker global growth and declining global liquidity.

Given that pension fund portfolios are long term, we centre our investment outlook on the five-year return outlook, rather than on one year. The low-return theme remains intact. There is still a strong case to use alternatives, in the form of both private equity and hedge funds, to mitigate against downside risks and potentially bolster returns. DM equities have the added benefit of the global opportunity set, which is a slight constraint for South African equity.

However, growth is not the only factor assisting EM equity prospects. Valuations corrected substantially in late , making them more attractive than levels seen at the start of US dollar strengthening risks cannot be ruled out while the Federal Reserve is still expected to hike interest rates, but the US dollar is closer to the end of its strengthening cycle than the start.

After falling Valuations are certainly better, but constrained economic activity should keep the return outlook lower than long-term historical averages. Unlisted South African equities are expected to provide a premium above listed equity, as they did in The rise in global interest rates in implies that the five-year return prospects for global bonds have improved.

Bonds could also become a useful diversifier as the end of the US business cycle nears; however, five-year real return expectations remain negative, in US dollar terms, as interest rates are low and rising, while inflation is ticking higher, as a trend. After years of ultra-low interest rates and inflation in the DMs, we cannot discount the risk of a change in conditions towards higher inflation and interest rates, which would be a negative outcome for global bonds.

Global bonds are still considered an unattractive asset class, over the long term, as a result. Despite ongoing credit rating concerns, owing to fiscal deterioration, South African bonds continue to offer reasonably attractive return prospects, as a result of elevated real yields.

US short-term interest rates have risen to the highest levels since , making the US dollar cash a reasonably attractive asset class, in the face of shorterterm financial market volatility. This is a dramatic shift from the last 10 years, when interest rates were at the zero lower bound. US interest rates are also noticeably higher than their developed markets peers, because the Fed has continued with its tightening cycle, while other global central banks remain very cautious.

For this reason, cash allocations need to account for geographical concentration. Longer-term return expectations from cash are unlikely to compete with growth assets. Local cash return expectations benefit from the same dynamic as bonds, with positive real return prospects over the coming years. Prudent SARB monetary policy is the major contributing factor to positive real interest rate conditions. Given the degree of volatility in financial markets and the risks attached to equity, cash presents periodic attractiveness despite its low long-term real return expectation.

Such projections are subject to market influences and contingent upon matters outside the control of Alexander Forbes and therefore may not be realised in the future. Historical returns are no guarantee of future performance. Investment management fees are intended to compensate investment managers for their time and skill to manage the assets of a fund, and are usually in the form of a percentage of the assets managed.

The main types of investment fees are annual base fees, with some funds charging an additional performance fee. Fees can be quoted on a fixed basis or a sliding scale. The performance fee is generally charged when the manager outperforms its specified benchmark. The manager therefore earns a percentage of the investment profits often both realised and unrealised.

Alexander Forbes Fee Study The purpose of the Alexander Forbes Fee Survey is to create transparency and visibility of fees charged by the investment industry for institutional pension fund mandates. The main benefit is to provide trustees, asset consultants, and advisors with a framework to benchmark the fees that they are being charged. The fee survey utilised data over a five year time period i. Data was obtained through liaising and collecting data from asset managers and the validity thereof was checked.

Limitations of study: 1. The universe was restricted to asset managers that participate in the Alexander Forbes Surveys. Participation in the survey was voluntary, and therefore selection may be biased 3. An actively managed investment objective that seeks consistent, positive returns regardless of whether markets are rising or falling; and without reference to a benchmark index for comparison. An actively managed investment framework where the asset allocation, strategies employed and risk assumed to achieve the specified investment objective is delegated to the investment manager.

Active Fund Management An investment approach that relies on the belief that it is possible to outperform the market. Typically an actively managed fund would select asset classes and investment securities that are expected to perform better than the market or benchmark.

An independently constructed reference usually a publicly available index that sets an objective rate of return the neutral position that should be used to test the effective implementation of an investment strategy. A good benchmark will also be representative of the asset class or mandate and is investable itself. A popular index used to benchmark performance for South African fixed income bond portfolios. This index represents a weighted basket of the top 20 South African bonds ranked dually by market capitalisation and liquidity.

Alpha Alpha is a measurement of the performance of an investment portfolio against a benchmark. The alpha is the return the fund or portfolio makes, relative to the return of the benchmark. Annualised Return To convert an investment return over a period other than one year into an equivalent one year rate of return for comparative purposes. Annualising returns for periods shorter than a year is not recommended. Asset Class Categories of investments that behave similarly and are subject to similar market forces.

Major asset classes include equities shares , fixed income bonds and cash , commodities and property. Debt issued by a government or a company, typically promising regular payments of coupons interest on specified dates with a final capital payment on the maturity date. It can be viewed as a loan given to bond issuers by bond holders. This index represents a weighted basket of SA Government issued inflation linked bonds calculated by Barclays Capital. This is usually considered the risk-free asset.

A portfolio strategy to reduce exposure to risk by investing in various instruments or asset classes, such as equities, bonds and property that are unlikely to move in the same direction at the same time. In other words, the process of spreading investments among different instruments or markets to reduce the overall risk or loss if one performs poorly.

Composite Dispersion The extent to which the returns of all portfolios within a composite differ. It can be measured in different ways, including: the difference between the maximum and the minimum return range ; the difference between the 1st and 3rd quartile inter-quartile range ; the standard deviation of returns, or mean absolute deviation. Duration Duration is a measure of interest rate risk for a bond or portfolio of bonds. It measures the sensitivity of the value of a bond — or collection of bonds — to a change in interest rates.

A compound rate of return that expresses the relationship between the initial investment and the returns earned on that investment, incorporating future returns which are earned on past returns. For most investors, this is the most accurate way to calculate their returns as most investors will leave their returns in an investment. The effective rate converts the compounding rate of return into a simple rate of return. This means that the effective rate of return can simply be multiplied by the investment period to calculate the cumulative rate of return.

It is set when the bond is issued and is usually related to the nominal value of the bond at the time of issuance. A major category of asset class, which is a commonly used name for ordinary shares, representing ownership in a company. The owner of the share shareholder will generally be able to vote on company issues; and will be entitled to dividends declared.

CPI is an estimate of the inflation rate measuring the price of goods and services in the economy. A major category of asset class that includes cash, nominal bonds, inflation linked bonds and credit instruments. A type of bond issued by a non-governmental entity. These bonds typically carry a higher risk than government guaranteed bonds, e.

Credit Risk Credit risk refers to the risk that a bond issuer will default on any type of debt by failing to make required payments, i. Cumulative Returns The cumulative return for a portfolio or an asset is the cumulative compound return over the full length of a specified time period. The percentage measure of this return is not annualised and as such represents the actual total return of the portfolio or asset over the period.

By annualising the percentage figure, one can calculate the average annual return of the portfolio or asset over the period. Defined Contribution Employer and employee contribute an agreed amount every month. When the employee retires, the accumulated capital amount and growth are used to purchase a pension from a third-party supplier. Developed Markets A developed or an advanced market in investing terms is a country that is most developed in terms of its economy and financial markets.

Frontier markets are less advanced capital markets in the developing world. Frontier markets are countries that are more established than the least developed countries LDCs but still less established than the emerging markets. Hedge Funds These are usually absolute return investment strategies that use alternate investment techniques e.

The funds can be used in a Regulation 28 strategy but are not compliant as standalone products. Inflation The increase in the general price level in the economy. The inflation rate is calculated by defining a basket of goods and services that a typical consumer would consume and calculating a weighted average of the prices of those goods to arrive at a single percentage number, e.

An inflation linked bond is a type of bond where the final capital payment is adjusted by the inflation rate for the term of the bond. A framework of principles and way of thinking about markets that underlies the beliefs and approach of an investment manager. It drives which asset classes and investment securities to include in the investment portfolio. It can be used to describe the style of a manager.

Information Ratio A risk-adjusted measure of return calculated by dividing the active return of a fund by the tracking error of the fund. Inter-quartile Range A statistical measure representing the difference between the medians of the upper half and the lower half of a ranked set of data.

International Monetary Fund IMF The International Monetary Fund IMF is an international organization that aims to promote global economic growth and financial stability, encourage international trade, and reduce poverty. JSE Johannesburg Securities Exchange Currently the only South African Exchange which offers a centralised trading platform to capital markets across a diverse set of investment securities, in particular, equities, bonds, and derivatives.

Long Position It is a positive holding in a portfolio that results from buying investments in the portfolio. This is done when the manager believes that the value of this investment security will increase in the future and he will be able to sell it for a higher price and create a profit. This is directly opposite to a short position.

Leverage It is a holding in a portfolio that results from using complex alternate trading techniques that allows the manager to buy investment securities with money borrowed or by utilising collateral as a means of payment. Beating the median cumulative return by 4. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request. The value of your investment may go up and as well as down as past performance is not necessarily a guide to future performance.

The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and the dividend withholding tax. A schedule of fees, charges and maximum commissions is available on request from the Manager.

There is no guarantee in respect of the capital or returns in a portfolio, A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. For any additional information such as fund prices, brochure and application forms please go to www. Modified duration is a type of duration measure which measures the approximate sensitivity of the value of a bond — or collection of bonds - to a change in interest rates, assuming the cash flows remain unchanged.

As such, it is only appropriate for bonds with no embedded options. Maximum Drawdown A risk of loss measure that is calculated as the maximum loss incurred by an investment over a stated time horizon. Mean Absolute Deviation A measure of dispersion calculated as the average of the absolute differences between each value and the mean in a data set. Measures internal rate of return, to identify when cash flows are entering or exiting an investment by discounting cash flows to the beginning value.

Murabahah refers to an installment credit agreement for the sale of tangible goods. The seller acquires an asset, which the buyer agrees to purchase at some point in the future. The seller is entitled to a profit, as long as the exact markup is disclosed in the contract. Payments may be spread out over time. The index includes a collection of stocks of all the developed markets in the world, as defined by MSCI.

Investment limits set by the Pensions Fund Act on retirement funds to protect against imprudent investment decisions. Overweight Exposure to a specific investment security or asset class in a portfolio which is higher than the proportion it represents in the market index or benchmark it is being compared to. Passive Investing An implementation approach of a specialist fund strategy where the need to outperform the benchmark is not required in order to meet the investment objective.

The specialist investment strategy is invested in passive funds. Not to be confused with Passive Fund Management. Typically the investment portfolio will mirror the holdings of a market index. Passive managers believe that this is a more efficient and cost effective way of accessing the risk and return profile of an asset class or investment style.

Pooled Portfolio Funds from many individual investors that are aggregated for the purposes of investment, as in the case of a retirement fund. Investors in pooled fund investments benefit from economies of scale, which allow for lower trading costs, diversification and professional fees.

Pooled funds are generally backed by a policy of insurance. Shariah prohibits Muslims from profiting, even indirectly, from unacceptable practices, so investors are expected to account for and give away any income derived from riba or other haram sources. Return Percentage increase in the value of an investment over a period of time, expressed as a percentage of the value of the investment at the start of the period.

All returns in this survey are calculated as Time Weighted Rates of Return. Risk Risk is a very generic term used to calculate either variation in returns or as a measure of losses. One needs to critically assess some of the reasons listed by the asset manager network.

There appears to be new signatories in globally, but none appears to be African as cited by an online publication. Signatories are required to perform mandatory annual assessments to evaluate progress in incorporating ESG considerations in their investment processes, and to highlight areas of improvement.

It requires a submission of RI practices from strategy and governance to asset class modules. Granted it does take upfront work of defining your investment process for ESG practices. Nonetheless, the process does require that an evidence-based control framework be in place.

It requires the articulation of a responsible investment philosophy, process and record-keeping of stewardship practices such as engagement with investee companies and proxy voting record-keeping. New entrants to the industry may view this as a hurdle. There is, however, a case to be made that the cost of being in the business of managing private wealth or retirement nest eggs is a serious one, if not a privilege.

Perhaps it does require a serious approach. One that requires these processes, PRI aside. Pension fund Regulation 28 and the Pension fund Act Circular have, without the legalese, spelled out the following:. Prudent investing should give appropriate consideration to any factor which may materially affect the sustainable long-term performance of a fund's assets, including factors of an environmental, social and governance character.

This concept applies across all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment. Optically, the fees for managers at the lowest tier of AUM do not appear particularly onerous. The average quantum of AUM of managers forming part of the remaining 50 managers, including multi-managers within the Alexander Forbes June AUM survey, is approximately R25 billion.

The commensurate fees appear negligible. One could rationalise the cost by weighing it up against the value of the research output, thought leadership and direction provided by the PRI network across asset classes with respect to RI. The PRI allows for the submission to be non-audited but, of course, this development over time would curtail credibility. There exist unique social nuances that beset African regions as well as other emerging markets.

The matters of an environmental aspect, such as climate change — although very much applicable to African countries — require finesse given the glide path of commitments made in the Paris accord and detailed through the Taskforce on Climate-related Financial Disclosures guidelines. The ability to foster and shape the conversation around the definitions or factors that ought to be considered have been led by the developed world.

This is not levelled at the PRI specifically, but also at impact measurement frameworks where definitions of social aspects are still being debated robustly. Take, for example, contract labour being fair wage and competitive in the global landscape, but contested in South Africa given the possibility for worker exploitation.

South Africa, as a relatively sophisticated financial market, should have a seat to influence definitions and roll-out of self-regulation measurement models. Uniform, vanilla definitions will not achieve desired outcomes. That said, one cannot influence from the sidelines. The approach of managing assets in a vacuum is a worn-out excuse. The offshore earnings base of companies listed within the market capitalisation of JSE is significant.

Can one really expect to apply only a local legislation to these? Surely corporate regulation that South African listed businesses are expected to conform to in offshore jurisdictions is not contested but rather accepted as a price one pays for globalising a business? It is a step in the right direction and therefore acceptable locally. There is a philosophical alignment between these guiding industry bodies, and their principles can be matched.

However, an endorsement. Consider the argument of conducting investment research once off albeit thoroughly, and not keeping abreast of changes and developments. Any analyst or portfolio manager cannot foreseeably extract value with this approach. Is there more to be said for an evolving process versus a static one? The larger asset managers can allocate time and resources to developing in-house depth in responsible investment activities and initiatives.

Emerging managers, however, can use efficient methods of achieving the high watermark of being a signatory. There are numerous examples at play, given the same constraints faced by emerging managers globally. For emerging managers who are sceptical about being a signatory to the PRI at this stage in their business lifecycle, there are case studies worth investigating that highlight methods adopted by their global emerging peer universe.

The first King Code on Corporate Governance arrived in Very much tied to the dawn of democracy in South Africa, it included an aspect on affirmative action. It focused primarily on aspects relating to boards and directors, eventually evolving to incorporate sustainability considerations in later versions. It widened its application to all types of business not just the listed.

Importantly for investment managers, King 4 , Principle 17 specifically addressed the needs of the pension fund manager. Both require institutional investors to take ESG issues seriously. Where ESG integration is concerned, African private equity has been ahead of the curve compared to other markets. The role of the multi-manager The role of the multi-manager is to ensure that we deliver on the promise of managing assets in a manner that provides a smoother investment experience for the end client.

The skill and expertise to deliver on this span across research and portfolio construction to optimally blend a bevy of managers from the start-up to the established , asset classes, styles or risk premiums, listed or unlisted, local and global. The privilege of this vantage point comes with a level of responsibility, regulatory obligations aside.

This commitment hinges on the fact that we will influence and shape the market acting as an usher for change. We acknowledge all the approaches and practices adopted within the responsible investing umbrella. These include resource-constrained, emerging managers with limited RI practice. We contrast them with the manager that is bold enough to be an activist, despite not holding a single share in a particular company.

We challenge those with weak processes, and tick box articulation of responsible investing practices. Our manager research process penalises those who cannot evidence integration of ESG throughout the investment process from idea generation and portfolio construction to business management aspects of a strategy.

We encourage reporting of proxy voting from everyone but make them mandatory for incumbents. The role of the development finance institutions in influencing and making ESG very much a part of the term sheet of investments is commendable. The ability to meaningfully contribute to ESG as a driver of performance in unlisted markets is met with less resistance. The hedge fund managers locally and globally have been laggards in their commitment to RI. This is partially due to a niche investor base.

Another reason cited by hedge fund managers is that they may, at times, make use of derivative instruments as opposed to actual share ownership. In this instance, the actual ownership of assets resides with the provider of the instrument and not the manager. Voting as a result would not be necessary.

More work needs to be done within this asset class. Is the idea of RI within South Africa reaching its peak and therefore ex growth? The consideration that South Africa is a mature market relative to the other African peers, and certainly some of the other emerging market peers, is fair. To be genuinely competitive one needs to keep the eye on the local game or bourse, bearing in mind a global mindset.

Markets are intertwined and global headwinds influence South Africa. The avenues for opportunity in infrastructure, thematic, developmental investments are more pressing than ever and ample opportunity for responsible investing practice evolution exists. The endorsement of responsible practices by boards of pension funds suggests that RI growth is still very much on the horizon. Our experience does suggest that there is more than meets the eye. The road to complete ESG integration, transparency through disclosure, appreciation of quantitative and qualitative, financial and non-financial risks is a long one.

The efficient market hypothesis has much more to play out for complete price discovery to be coined. At this juncture, there is still a need for influence and change by the responsible steward, green peace analogies aside. For South African institutional investors, a struggling economy, governance crises and ruminations regarding prescribed assets have highlighted concerns surrounding the social and environmental impact of investments. Improved access to information, policy shifts regarding the sustainability of investments1, the interests of the consumer2 and the state present investors with both risks and opportunities.

Investment managers who can demonstrate how their diligence and skill can measure and leverage the impact of investing are likely to derive a new advantage for their investors and the long-term sustainability of their portfolios. Concurrently, institutional investors hold the key to mobilising capital toward sustainable solutions that address, indeed reverse some of the damage. Bloomberg Intelligence demonstrates that half of. Investing for impact appears to be coming of age, applicable across asset classes and building a compelling business case with regard to investment returns6 in conjunction with widening market acceptance7.

One of the challenges to be overcome has been reaching conceptual consensus between practitioners, policymakers and promoters around definition and metrics to ensure consistent application and in time, comparability. Guidance Note 1 of PFA. Treating Customers Fairly. Impact Investing Market Map. Impact Measurement and Management Since , a global network of over institutional investors, asset owners, development finance institutions, academics and multi-lateral agencies have been working together to provide investors and enterprises with a coherent set of metrics, disclosure standards and frameworks for measuring and managing impact.

With less focus on definitions, IMM has become increasingly integrated into investment processes and increasingly focused on impact performance. The IMP built consensus around the five dimensions of performance that matter to understand any impact. A critical aspect of IMM involves recognising that all investments have an impact on the stakeholders that are connected to its underlying assets.

Examples include health repercussions related to the sugar and tobacco industries and, more recently, the public and investor responses to the coal industry related to carbon-based contributions to climate change To assist investors and managers, the IMP also built consensus around a logic to communicate the impact of underlying assets or enterprises across the investment value chain. Using this logic, the impact of an asset, or portfolio of assets, is the combination of its impacts on people and the environment.

The classification does not ignore the possibility that an asset, or portfolio or assets, may cause harm to stakeholders. Operating Principles for Asset Management. Over recent years, these approaches have been tested and applied by institutional investors, enterprises and other stakeholders in various geographies and sectors15 Bank of Montreal BMO Global Asset Management, USD billion AuM , applied the five dimensions to their existing impact reporting process and found that it provided them with a deeper idea of the scale and depth of their impact, in addition to the type of impact that their SDG mapping offered.

The implications and opportunities of these recent developments in impact reporting are as significant in South Africa as they are in the rest of the world. Indeed, the recent FSCA Guidance Note June nudges pension fund Trustees in the direction of greater accountability in their investor policy statements in light of the risks associated with SDG funding gaps and climate change mitigation.

These impact measurement approaches illustrated above, present a compelling case in guiding investors towards contributing to the growing data and discourse on their impact through their investing, not only in relation to impact investments but all assets under management. For each investment, detail and complexity can de adapted accordingly. To fulfill standards of rigour and comparability for adequate measurement and analysis, impact reporting is an intentional, evidence-driven discipline supported by the progressive shift towards the standardisation of terminology and data classification.

IMM Education. With the prevailing economic, environmental, social and governance considerations that affect financial investment and impact performance, the availability of impact-oriented data sets contribute positively to improving financial analysis, reducing risk and enabling more robust decision-making. In the context of the country and its particular economic and social challenges, South African investors have a role to play in leading the application and improvement of the tools to further the understanding and benefits derived from the impact of investing.

As new case studies continue to emerge, there is currently an untapped opportunity for impact-oriented investors and their investment managers to demonstrate their corporate citizenship and discover new competitive advantage in their local environment and international markets. Consider this carefully. That income is only meaningful if it can buy an adequate quality of life: access to adequate housing, healthcare, community support systems.

Whether our housing will be wiped out every five years or so because of wildfires or tornadoes or floods triggered by climate change. Whether the cost of healthcare, insurance, data and information processing will be at all controllable — and so on. Every investment we make — whether long term or short term, whether in a listed capital market or a private capital market, whether through a formal mechanism or an informal mechanisim — has an impact.

As investors, we can either choose to understand what that impact is or ignore it. As fiduciaries for members, we cannot choose to ignore it. We need to understand it. How effective would those investments be in ensuring that South Africa remains globally competitive as a country? Unlisted assets in the form of private equity, real estate and infrastructure present a powerful opportunity to scale up investments with impact when considered alongside listed investments like the JSE.

The unfortunate reality is that currently the listed assets and unlisted assets are most often considered in isolation and this potential is lost. The reasons have been well articulated — lack of policy implementation, breakdown in trust between private and public sector, and structural inequality. This framework of analysis provides a methodology that allows us to use unlisted assets to complement listed assets and use the portfolio as a whole to support — and perhaps even catalyse — sustainable economic growth.

This highlights a lack of reach and intention that underpins exclusionary investing. Reach is lacking even with such listed companies, as it serves members of the society with financial means and excludes those who need the benefits of the investments the most. The reality that many global investors are beginning to appreciate is that the listed capital markets in general appear to be getting further and further delinked from their initial objective of funding economic growth.

While this phenomenon appears to be impact primarily developed markets, South Africa appears to be behaving more like one of these markets. Creating a radically different framework for funding retirement investing The questions being asked here suggest that we will need a radically different framework for funding retirement investing.

Realistically, because of the way the retirement industry seems entrenched around a singular approach to solving for funding, it is highly likely that we only see incremental changes over time to address this mindshift change. But an even greater priority was to create a new governance framework that linked investment initiatives to viable economic imperatives. Since the creation of the division in , their sector specialists have undertaken the extensive task of:.

Evolution requires new investment approaches, driven by topdown, multi-asset and sector selection strategies. Quarterly internal departmental briefings, in-house forecast model, integration with external sector or macro-economic model. Thematic impact investing — Across multiple sectors — Quarterly internal departmental briefings, in-house forecast model, integration with external sector or macro-economic model.

Manufacturing Project development partnership fund Established to increase delivery of investment strategy and catalyse pipeline origination. Supporting investment process, origination and due diligence with market or industry research Source: PIC research.

Benefits of aligning portfolios with economic growth By using this framework for allocation and investment decision-making, the process introduces a number of additional benefits that current allocation strategies may fail to incorporate:. Foundation research driven by global thematic investment trends and South African sector fundamentals Investment strategy background and objective. The PIC Research and Projects Development was established in to ensure that the investments made are linked to over-arching diversification and alpha-enhancing sector strategies, resulting in increased economic growth and therefore increased employment.

Sector investment strategies based on overarching macro economic drivers Taking into account 3 core pillars of each investment strategy. The conclusion of these three steps is a model or reference portfolio of investments. An analysis is then undertaken of the gaps in the current compared to the reference portfolio for each sector.

This is the most critical step as it provides strategic direction of where to invest in the unlisted market to close the gaps in the listed market. Agribusiness — existing portfolio exposure to key drivers Sector portfolio exposure — listed against unlisted. Opportunity or risk to be considered Scramble for high-potential land Rising need for production efficiencies and enhancements Increasing demand for agricultural technology Need for emerging market infrastructure to unlock potential Changing dietary preferences grains to protein Increasing demand for consumer-packaged goods and beverages Long-term currency depreciation supports export industries Increasing import competition from developed market economies.

A high-level example of the first iteration of that process is shown below. Consideration and prioritisation are given to those areas which present strong value chain underpins and clear market growth aspects which support economic growth exports or imports. How can we make this process relevant to any South African retirement fund? Understandably, the full PIC investment process incorporates return assumptions for each element in an array of available strategies, sectors and specific assets.

By integrating a top-down macro-view with a bottom-up view on valuations, deriving return assumptions is a fairly robust process. But clearly investment professionals managing other retirement funds will each develop their own return assumptions for these investments. That said, we still believe perspective of portfolio analysis provides considerable value to any South African pension fund.

We believe that our evolving understanding about what could be achieved through a more considered investment process will have a dramatic and irrevocable impact on how we approach pension fund investing in the future. We believe the time to start engaging with this new thought process is now. Just as we can apply any risk model or ESG assessment to any pension fund, irrespective of the underlying return assumptions, so can we apply the PIC analysis framework to help trustees.

The true value of Alexander Forbes is the power of one team. As one, we combine 85 years of knowledge to offer our clients a seamless experience. Through a single platform, we share our expertise, experience and insights to strengthen our advice-led approach across our retirement, investment and health portfolios.

Because as one, we can ensure the best outcomes to help our clients grow. Go to alexanderforbes. The changes which took place in the calendar year are summarised in the below. Sources of performance Multi-Asset class portfolios build and implement their investment strategies based on a multitude of methods; the most popular being economic macro research; asset allocation modelling strategic and tactical ; relative asset class valuation; assessment of market risks; security valuation; portfolio construction and market hedging strategies.

The portfolio manager will also use the asset class exposures to manage an overall risk strategy. The year was dominated by US and China trade tensions, global economic slowdown, fears of a hard Brexit and global policy uncertainties. The year ended on a high note, with the global financial markets having the best performance since the global financial crisis. Asset class returns in Q4 were strongly boosted by trade ease as the US and China reached a partial deal, boosting the global risk appetite.

An increase in global liquidity by major central banks also supported the global financial markets, with investors buying emerging market equities and bonds compared to global bonds and US dollar cash. Global equity markets experienced a strong , returning resilient returns across a broad range of asset classes and geographies.

Global bonds underperformed equities for the full year as the global fundamentals improved, favouring risky assets. In the commodities markets, oil prices and gold saw strong gains of 5. South African markets delivered positive returns despite negative domestic fundamentals like power cuts, low business confidence, worsening fiscal constraints and a weak local economy. Ultimately, the favourable global backdrop drove most asset class returns into positive territory.

The ALSI returned Bonds and cash lagged equities in the year, with Property bucked the strong performance trend, returning 1. How South Africa Best Investment View managers performed For the year, most South African best investment view BIV managers kept their asset allocation relatively stable except for Allan Gray and Investec, who decreased their allocation to equities by 6.

All the managers in the SA BIV category had positive returns for the year except for Bridge, who posted a return of Nedgroup and Coronation were the two best performers for the year in the category. Their position in Naspers and Prosus also contributed positively to performance.

British American Tobacco and Reinet Investments benefited from the banning of vaping flavours in the US and easing of US regulatory tensions regarding combustibles. The worst performing manager for the year was Bridge.

The Bridge Managed Growth fund maintained a full allocation to growth assets equity and listed property during Foord Asset allocation added value through the year with the meaningful allocation to government bonds making the largest single contribution to returns. Equities also contributed positively to returns. The very low weight in struggling domestic property companies was positive. The holding in physical gold Newgold ETF also provided attractive double-digit returns. Fixed interest yield curve positioning and stock selection were also positive.

Property stock selection added value with most of the allocation in niche property companies Capital and Counties and Stor-Age. Prudential The biggest contributors were the overweight positions to stocks with exposure to global growth and foreign currency earnings like Anglo American, Exxaro, Sasol and Sappi, as well as global giants such as British American Tobacco.

Detractors from relative return were the underweight exposure to stocks such as Sibanye, Northam and Anglo Platinum. Domestic bonds also contributed favourably to the performance over the year. For the year, most managers in this category kept their domestic asset allocation relatively stable except for Obsidian who increased their allocation to domestic equities by 8.

Sasfin was the lowest at Kagiso was the best performing manager in the Global BIV category for the year. Excellent local and global stock selection as well as fixed interest instrument selection attributed to performance for Kagiso. Strong local equity contributors included Northam Platinum, Quilter and Aspen.

Siemans, Prudential and Spire Healthcare were among the strong global equity holdings contributors. PSG had a disappointing year. Performance of the Balanced fund was primarily driven by the disappointing returns from local and foreign equities. Asset allocation and fixed income selection added value but could not offset the effects of stock selection. After delivering a solid performance in , Rezco consolidated their position in the Global BIV category by once again being one of the strongest performing managers for the year ending The key driver of performance of the Rezco Value Trend fund was its investment in the Rezco Global Flexible fund, which produced a Domestic equity contributors included SibanyeStillwater and Northam Platinum.

Coronation ranked second and fourth respectively and Foord, fourth and twelfth respectively. Comments on the performance of some managers Allan Gray Underperformance could largely be attributed to stock selection both locally and offshore. Holding an overweight position in Sasol and Glencore and an underweight position in AngloGold Ashanti and Anglo Platinum was detrimental to performance. Absa The exposure to domestic equity added to performance from an asset allocation perspective.

This was, however, largely offset by poor stock selection. Low exposure to mining and resources shares detracted value. The low exposure to domestic bonds also detracted from performance. Coronation The large exposure to the PGM sector contributed meaningfully to performance for the year. The large position in Anglo American and the underweight position in Sasol also contributed to performance. British American Tobacco, a stock which detracted from performance in , was up strongly during SIM Particularly strong positive contributions came from the large exposure to domestic equity and bonds.

Global equities also delivered a strong performance for the year. Some exposure to local bank Additional Tier 1 AT1 paper delivered performance in excess of domestic equities. In addition, stock selection in global technology and consumer shares also added to alpha.

An overweight position in fixed income also contributed positively. The precious metal sub-sector was the largest detractor as STANLIB held an underweight position in platinum names and did not hold gold shares. The increase in equities was broad-based across, small, medium and large caps. They were boosted mainly by resource stocks and rand-hedge stocks within the industrial sector.

The main drivers of resources were the rally in platinum and gold. Financials and SA Inc industrials underperformed, reflecting the local poor economy. The economy saw the largest quarterly drop in a decade after the power utility implemented a series of power cuts in Q1 , resulting in a contraction of 3.

Resources were the best sector in the year, returning It was followed by industrials, which returned 9. Despite the dovish global central banks, financials marginally performed in , returning 0. The financial sector has a strong correlation with the performance of the local economy. Major economic events that drove the market in Trade tensions The positive sentiments around US—China trade talks have helped financial markets rebound in after returns were negative across the breadth and depth of major asset classes and investment styles.

President Donald Trump signed off a phaseone deal with China in early December , reducing trade tensions between the two countries and averting the 15 December introduction of a new wave of US tariffs on Chinese goods. The deal includes a promise by the Chinese to buy more US agricultural goods and a possible reduction of existing duties on Chinese products. The US agreed to a significant increase in purchases of Chinese agricultural goods in exchange for tariff relief. China committed to doing more to stop intellectual property theft and both sides agreed not to manipulate their currencies.

The partial deal will boost global sentiment, mainly towards emerging markets and risky assets but is also positive for global growth. However, our view remains that any deal reached will only be a temporary relief, as the trade war is a proxy for a technology war.

However, deglobalisation is beyond the US—China trade tension. Controls over foreign ownership on national security grounds are becoming more commonplace, suggesting that trade global policy uncertainties may continue to cause volatility in the global financial markets and hinder global economic growth. Slowing global economic growth Disappointing global economic data shows that the global economy has slowed down in The Chinese economy slowed to 6. The economy grew by 3.

The UK economy grew by 0. Growth was supported by strong household consumption in the quarter. The contraction in Q2 highlights that the Brexit uncertainties weighed on economic activities. Dovish major central banks In response to economic growth concerns, central banks exhibited panic and pushed out or postponed plans to increase interest rates and end liquidity withdrawal. Globally, in central banks offered support to weakening economies through interest rate cuts and bond-buying programmes.

The US Fed cut interest rates three times last year, to a 1. This was due to weakening global fundamentals and muted inflation pressures. The Fed also started to buy USD60 billion worth of treasury bills per month in an effort to steepen the yield curve which had inverted.

Given this, the US Fed is likely to keep rates unchanged this year unless global fundamentals take a turn and negatively impact the US economy. Additionally, the ECB cut the deposit rates by 10 basis points to Meanwhile, the ECB reduced its inflation forecast to 1. This means that the ECB will not reach its target of 2.

This ends the Brexit uncertainties that have negatively affected economic activity in the UK. Furthermore, Boris Johnson promised to guarantee that the Brexit transition phase is not extended, setting up a new cliff-edge for a no-deal split with the European Union at the end of The Labour Party suffered a devastating defeat and party-leader Jeremy Corbyn promised not to lead the party into the next election. The British pound has strengthened against the US dollar.

Middle East tensions The tensions in the Middle East caused volatility for markets and the global economy, as the region plays a vital role in the world economy through its oil markets. The oil price rose by Heightened tensions in the region threaten the supply of oil to the global economy, negatively impacting the global economic activities.

Power cuts A series of electricity blackouts — stage 4 load shedding loss of MW implemented by Eskom throughout two weeks in March — negatively impacted investor sentiment and business activity, resulting in a contraction of 3. The economy struggled to improve throughout the year due to deteriorating global fundamentals, low business confidence and lack of structural reforms to revive the local economy. The market expected an expansion of 0.

Inflation Tight domestic credit, weaker currency pass-through effects, and low economic growth have kept inflation contained in South African CPI decelerated to 3. Inflation averaged to 4. The SARB has cut rates by 25 basis points to 6. The muted inflation outlook and low economic growth saw the SARB unanimously cut interest rates by 25 basis points in January This fiscal outcome was worse than expected and was due to downward revisions in economic growth and shortfalls in tax revenue collections, more bailout provisions for Eskom and other state-owned enterprises SOEs while expenditure cuts have remained on the margin.

It is the only rating agency that still rates South Africa at investment grade. However, the downgrade has largely been priced in by markets, which suggests that the impact of financial markets will not be too pronounced. The agency, together with Fitch, already has the country in sub-investment grade. Visit www. Laurium is an authorised financial services provider FSP No The value may go up as well as down and past performance is not necessarily a guide to future performance.

A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Forward pricing is used. For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.

Because of you, we can invest in more of By teaching thousands of children to read, we build empowered communities. This may lead to volatility of returns in the short term less than one year. The benchmark for our full discretionary funds is calculated in-house, using FTSE free market indices and estimated peer group weightings.

Objective: The portfolios are balanced multi-asset class portfolios with exposure to both global and local assets, subject to the restrictions imposed by Regulation 28 of the Pension Funds Act and aim to maximise long-term more than 5 years capital returns. Objective: The portfolios are balanced multi-asset class portfolios with exposure to global and local assets.

Objective: The portfolios are balanced multi-asset class portfolios, subject to the restrictions imposed by Regulation 28 of the Pension Funds Act and aim to minimise the probability of short-term less than one year capital loss while targeting long-term more than five years capital growth.

Closer to the truth Our obsession with depth and detail brings greater understanding and better performance. To find out more, visit www. One of the first and most commonly referred to lessons of investing is to remove emotions from the investment decision-making process. However, this is much easier said than done.

Behavioural finance is the field of study that aims to understand how investment decision-making in the real world behavioural finance differs from that prescribed by the textbook traditional or theoretical finance. Traditional finance assumes investors are rational, risk averse and always seeking to maximise value. However, in the real world, the opposite may often be true, with irrational decision-making and inappropriate risk-seeking behaviour driving bad outcomes and nasty surprises for investors.

Behavioural finance seeks to explain why investors sometimes fall into the trap of making decisions that are clearly irrational and sub-optimal for the investment objectives they are ultimately seeking to achieve. Overconfidence and confirmation bias are perhaps the two most prevalent behavioural biases affecting investment decisions:. In other words, people fool themselves in trying to be objective, yet only paying attention to information supporting or confirming the theory and ignoring all evidence to the contrary.

Past successes are attributed only to skill no luck. However, past failures are due to bad luck and not to a lack of skill. Overconfidence often leads to investors overestimating their ability to repeat their past successes and conveniently ignoring their past mistakes. With the benefit of hindsight, both these biases often have a large impact on the foolish certainty we think we have of the future.

This article is not about behavioural finance as such but rather about showing how emotions may lead to irrational and, consequently, sub-optimal decision-making, with possible destruction of value using current examples. Over the past five years, the local stock market has delivered disappointing returns, barely beating inflation.

It has been a painful period for equity investors, not only relative to the good returns we have seen in the past, but also relative to the returns local investors could have generated by investing offshore. Finally and most importantly, the article serves as a reminder that an investment strategy is, or at least, should be, linked to goals whilst being cognisant of the danger historically of emotive decision-making resulting in destruction of value for investors.

Graph 1 compares the South African stock market, relative to an offshore equivalent, over the past five years ending 31 March Markets have not come off unscathed either, with poor equity market returns and the real yields in our bond market exposing the lack of appetite for South African government debt. All the negative news makes it easy to feel that these days everything South African is bad, everything foreign is good and investing locally guarantees a poor outcome.

Based on this five-year past performance of the South African equity market, and combining it with the current political uncertainty, and low economic growth expectations, it is unsurprising to see how easily investors could conclude that they will never see double-digit returns in the local equity market again. Income is reinvested. The graph above is for illustrative purposes only and should not be considered as advice.

Despite the many warnings about the dangers of investing our money based on past performance, this information still drives most investment decisions. It enables us to rationalise the decisions we make to invest in the midst of an uncertain future. Unfortunately, uncertainty is a part of investing, and it is safe to say that local investors are not now faced with uncertainty for the first time.

Graph 2 compares the South African stock market, relative to an offshore equivalent, but this time over the five years ending 31 December Compared to inflation initial R growing at the inflation rate , this was a similar scenario to what we currently see, with local equities not only lagging global markets significantly, but also failing to deliver any meaningful real returns for South African investors.

Case study: Peter — Civil engineer Consider this … It is early December and Peter, a year-old local civil engineer, has been diligently saving towards his employersponsored retirement fund since leaving university 30 years ago. Peter is set to retire at the age of 60 and only has five years of formal employment left.

It is Christmas now and Peter instructs his adviser to move all his remaining local investments offshore. In addition, Peter resigns from his employment, to access his retirement savings accumulated over 30 years, paying taxes on the lump-sum withdrawal. With the advice of his financial adviser, he has also saved additional discretionary investments in local and offshore unit trusts. His financial adviser has been extremely negative on the outlook of the South African economy and constantly reminds him of the poor returns his retirement account and other local investments are generating, relative to his offshore investments.

Early in February he moves all his retirement savings to offshore accounts. Let us assume that at that date 1 December , Peter had a total of R in total savings to invest. Now, it would be fair to say that the uncertainty and apprehensiveness among South African investors during the latter part of would have been justified. However, graph 3 shows just how much value a decision to place all investments offshore would have destroyed. After months of his adviser prompting him to invest all his discretionary investments in offshore assets and with the rand weakening to its all-time low against the dollar, Peter has had enough.

All the signs indicate that it is time for drastic action. Based on the above illustration, had South African investors such as Peter moved all their assets from local to offshore accounts assuming either investing to local equities or US equities , it would have taken more than a decade to break even in nominal rand terms. The years after December saw the rand—dollar exchange rate appreciate from the initial R Any positive dollar returns were simply erased by the appreciating stronger rand.

In fact, it would have taken the investor more than a decade to November just to break even again. Taking the local inflation rate into account, it would have taken almost 14 years for the initial R offshore investment to break even in real rand terms to October The lessons learnt Having a portion of our long-term investments retirement or discretionary allocated to offshore assets provides for great investment rationale.

However, blindly allocating capital to offshore investments only also holds risks. What to consider when deciding on the optimal percentage of investor assets to be invested offshore: 1. Any positive returns in a foreign currency investment can either be dampened or enhanced by an appreciating or depreciating local currency. Decisions driven by emotions can result in undesirable outcomes The journey to steadily growing wealth can often be marred by emotions that drive irrational actions with undesirable outcomes.

Investment decisions informing portfolio construction should consider financial goals retirement spending needs and be based on rational and attainable outcomes. Forgetting our human decision-making biases, people easily fall into the trap of overestimating their ability to forecast the future with any level of certainty. An investment strategy tied to needs and expectations — rather than emotions — can help investors navigate the peaks and troughs of the market with confidence.

A qualified and experienced financial adviser or consultant can highlight the importance of commitment to an investment strategy over the long term, ensuring you stay on track and reach the finish line with no unexpected surprises. Regulation 28 safeguards us from emotional decision-making Regulation 28 of the Pension Funds Act is not a measure put in place to penalise retirement fund investors and members.

Regulation 28 seeks mainly to protect long-term investors from implementing drastic investment decisions and reinforcing sound investment plans while diversifying across multiple asset classes, locally and globally. Hence, with more global investment opportunities, most assets should be invested offshore. This argument is fundamentally flawed, as it completely ignores the second source of rand-based returns, namely the currency return.

In conclusion, as biased decision-makers, we need clear and prudent investment guidelines to safeguard us from our own often irrational emotional decision-making. Looking further to bring opportunities closer? Investing locally can feel like the safer option. Schroders has over years of experience investing in global markets, so you can rest easy knowing that if you decide to diversify your investments, you will be in expert hands.

Please remember that the value of investments and income from them may go down as well as up, and you may not get back the amount originally invested. For what matters most. Incorporated in England and Wales. Collective Investment Schemes in securities are generally medium to long term investments.

The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. The Manager does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request.

No carve-outs are reflected. Due to differing benchmarks, the portfolios below are ranked by active returns only actual performance less benchmark return and are purely for illustrative purposes. Objective: The portfolios included in this survey represent specialist active equity portfolios with various benchmarks. Due to differing benchmarks, the portfolios below are ranked by active returns only ie actual performance less benchmark return and are purely for illustrative purposes. This survey also include the following two categories: inflation linked bonds and flexible bonds-income.

Risk Return. Can you invest in peace of mind? Our comprehensive range of skilfully blended solutions ensures you have peace of mind about your retirement. Visit stanlibmultimanager. Objective: The portfolios in this survey represent short-term debt securities that are highly marketable and trade in large denominations. Objective: The portfolios in this Survey represent short-term debt securities that are highly marketable and trade in large denominations.

The secondary objective is to reduce the risk of capital loss over any rolling month period. SIM targets low volatility real returns that match the upside return objective e. At the same time, they target not to lose capital over rolling one-year periods.

No negative returns over rolling 12 month period No negative returns over 1 year rolling period. Preserve capital over a rolling 12m period. Objective: The portfolios in this survey comply with Regulation 28 and represent products targeted at real returns with a CPI objective. Whatever twists and turns holds, with us, you can help your clients navigate their journey to success. FoHF managers select a number of underlying single hedge fund managers to provide diversification across a range of alternative strategies.

However, while some of these managers adhere rigidly to these fixed asset allocations, others may allow these allocations to drift slightly within certain margins. Strategic Asset Allocation: Although managers included in the survey may have long-term strategic asset allocation targets, they actively manage the asset allocation in an attempt to enhance returns.

The different categories above Low Volatility, Best Investment View and Dynamic represent the different risk profiles of the funds. How to interpret and use this survey LDI is a complex area of investment. Alexander Forbes strongly recommends that investors obtain professional assistance in determining whether a specific LDI strategy or LDI manager is appropriate for them.

The guide below is not sufficiently comprehensive to enable most investors to reliably choose an LDI manager without further assistance. The guide will help investors appreciate the drivers of differential performance between managers and strategies at specific times in the market. The survey provides simple numerical measures that encapsulate the risk these managers have exposed clients to as well as the outperformance they have acheived.

Most LDI hedging techniques are based on algorithmic solutions or rules based mathematical techniques , suggesting that ineffective hedging techniques will very rapidly show up in this survey. The skillset of managers offering low risk solutions, tracking liabilities closely with tight mandate restrictions will generally show up over even short periods such as one year.

However, it is always preferable to evaluate these managers over a longer period if this is available. The period used for analysis should include at least one large shift in yield curves. In addition to focusing on tracking liabilities, some managers target outperformance of liabilities by investing in riskier asset classes such as credit and potentially view taking on the markets. An evaluation of the approach used and the skills of each manager is required to access how likely these managers are to deliver alpha in the future.

The past performance of these managers can be used as part of this evaluation. Longer periods will be required to accurately form a view of how good the manager is at choosing and managing credit. The exact length will depend on the strategy used, but may require five years or longer. Investors also need to consider the time frame over which they measure risk when choosing a manager and more importantly, in setting their mandates, mandate restrictions and portfolio targets.

For example, listed companies may need to manage pension fund or other sinking fund risks over a very short period to match their reporting requirements.

FELKAROTH S FARMING FORTRESS INVESTMENT

The period used for analysis should include at least one large shift in yield curves. In addition to focusing on tracking liabilities, some managers target outperformance of liabilities by investing in riskier asset classes such as credit and potentially view taking on the markets. An evaluation of the approach used and the skills of each manager is required to access how likely these managers are to deliver alpha in the future. The past performance of these managers can be used as part of this evaluation.

Longer periods. The exact length will depend on the strategy used, but may require five years or longer. Unlisted instruments may but are not necessarily subject to poor valuations or infrequent valuations by the manager. Many unlisted instruments such as swaps may be valued independently by a counterparty bank, partially mitigating this risk.

Investors also need to consider the time frame over which they measure risk when choosing a manager and more importantly, in setting their mandates, mandate restrictions and portfolio targets. For example, listed companies may need to manage pension fund or other sinking fund risks over a very short period to match their reporting requirements. Pension funds that are valued once every three years, with a larger risk appetite and a desire to target growth could use a longer evaluation period such as three years.

A brief description of the benchmark used is given for each composite. Only similar composites should be compared directly. For example, swap based and bond based benchmarks are not directly comparable. Specific measures Liability outperformance shows how much value, in excess of the growth in liabilities, the manager was able to add for their client.

All else being equal, a larger outperformance is preferable. Investors should consider a sufficiently long performance period to smooth over interest, credit and inflation cycles if they are primarily concerned with the longer term performance of their liability hedging activities. For example, certain investors may require close tracking on a monthly basis, while others may be more concerned with longer term value add. Investors should therefore give adequate attention to manager performance over periods that match their own reporting, risk evaluation and risk tolerance frequency.

Consideration should be given to all the stakeholders associated with the liability in reaching this decision. Liability convexity and duration are technical measures of certain liability characteristics. In general, the larger these quantities are, the more difficult it is to create an effective hedge.

Performance is therefore not necessarily comparable between managers with vastly different liability durations and convexities. A typical defined benefit pensioner liability increasing with full inflation annually has a duration of between nine and twelve years at current yields. All else equal, the larger this percentage is, the greater one would expect the long-term outperformance of liabilities to be.

This figure may also reflect mandate constraints regarding the inclusion of credit. Portfolio as a percentage of liability shows the size of the assets managed by the manager relative to the size of the liability the manager is mandated to hedge. All else being equal, the larger this portion is, the easier it is to hedge a liability.

This is hence an additional constraining factor on managers. Portfolios in the survey have been grouped into bands expected to offer similar hedging efficacy. Assuming all else is equal, larger minimum funding levels are preferable. All else being equal, a lower tracking error is preferable. Unfortunately tracking error captures outperformance desirable as well as underperformance undesirable.

Where close liability tracking is not essential, the minimum funding level is a superior measure of risk. For example, a manager providing a high degree of outperformance and high minimum funding levels may be a suitable choice even if this manager has a high tracking error. The risk adjusted outperformance shows the extent to which managers outperform liabilities, adjusted for the tracking error or risk they have introduced.

All else equal, a larger risk adjusted return is preferable. The risk adjusted return may, however, be an inappropriate measure for certain investors with specific liability objectives. For example, some risk tolerant investors wish to maximise long-term outperformance of liabilities. Such investors should focus on outperformance of liabilities in choosing a manager.

Other risk averse investors may wish to track their liabilities as closely as possible. Such investors should focus on choosing a manager based on tracking error. LDI Specific Measures Liability outperformance shows how much value, in excess of the growth in liabilities, the manager was able to add for their client. Nominal bond yields fluctuated dramatically across the quarter, shifting and reshaping in response to a stream of market relevant news flows. Across the quarter: The finance minister was replaced, with Tito Mboweni taking the reins.

The appointment was perceived positively by most commentators. The budget statement was sobering, with a downward revision to growth expectations and a downward revision to projected tax revenues. Globally risk remained elevated with the trade war between the USA and China still unresolved. This introduced external volatility and pressure for emerging markets, including South Africa.

Some progress was made between the two sides late in the year, offering some hope. Meanwhile domestic growth within China has begun slowing. Data emerged to show that the South African economy had moved out of recession. Ongoing discussions and rumours about the dire financial condition and indebtedness of several parastatals, including Eskom continued. The implementation of load shedding during the quarter reminded us all of the importance of addressing the challenges faced within Eskom.

Real yields reached the highest levels seen in half a decade during the quarter. Higher real yields can open up the opportunity to hedge for funds which have not been able to do so in the past. It may be worth re-visiting this topic if you are a decision making agent for an entity with defined liabilities such as a defined benefit retirement fund without existing LDI assets. This will need to be evaluated together with any negative impact the recent equity market declines have had on the specific fund in question.

We recommend discussing this with an LDI expert or your valuator. The rich flow of market relevant data drove material volatility in nominal yields both in level and shape , creating a testing environment for bond managers. LDI hedging does not operate within a vacuum. Many defined benefit funds choose to combine interest and inflation hedging with growth assets, blending the liability risk reduction and growth characteristics of these assets.

This may be required to ensure the fund retains a large enough exposure to growth assets. A reduction in the allocation to hedging assets may require changes to the composition of the hedge. For example, if the fund has become underfunded, the trustees may choose to review the investment strategy used to ensure it remains appropriate to the new circumstances in which the fund now operates. Higher yields also benefit funds transitioning unhedged active members into a hedged pensioner pool, as the transfer and subsequent expansion of the LDI hedge occurs at a higher yield than previously possible.

The movement of the real yield curve was less dramatic than that of the nominal curve. Real yields did still increase by 0. Manager returns were diverse. This is not unexpected, given the broad range of characteristics seen in the participant composites. For example, the credit allocations and benchmark durations vary significantly. The mild volatility in the real curve may have contributed marginally to this dispersion, though we caution against attaching too much confidence in the analysis of the small sample of participant managers.

At times, some LDI managers take nominal positions within their portfolios. This can be done to hedge small nominal risks that arise due to pension increases only being effected once per year rather than continuously. Some managers may also make use of nominal holdings to hedge interest rates without an inflation hedge to take advantage of perceived mispricing between the two markets.

Nominal bond section Long dated nominal bond yields rose by 0. Across the period the curve reshaped dramatically as well. This is a challenging environment that can show up unhedged positions. Participant managers coped well with the challenging environment, but we caution that there are limited conclusions that can be drawn from the small sample of participants. Even with an LDI hedge in place, investors operate within a dynamic set of circumstances and challenges.

This underscores the importance of suitable monitoring processes within a fund to trigger appropriate interventions and adjustments. Over the past 44 years, our commitment to creating long-term wealth for our clients has never wavered. To find out more, call Allan Gray on or your financial adviser or visit www. Objective: The portfolios included in this survey represent liability-driven investment funds with benchmarks expressly referencing investor liabilities.

However, as recent fund performances show, this need not be the case. To do this, it is of course critical to maximise the return on your investments over time — but there are further considerations for Islamic investors. The objective is to avoid investments in companies that cause harm to humans or society. This also rules out businesses within the traditional finance sector such as banking and insurance companies. And all companies selected for investment need to have closely managed debt and cash balance levels to avoid the payment or receipt of excessive interest.

Selecting quality investments with shares priced at a low valuation, and selling these once this value has increased The annual distribution of company profits to all shareholders, in the form of dividends. For the three years to December , the general equity sector delivered an annualised return of 1. Although the principles are based on Islamic teachings, the underlying ethical framework is ideal for all socially conscious investors seeking robust long-term returns.

Sentio Shari'ah Supervisory Board in conjunction with internal Shari'ah compliance processes. Donated to charities approved by the Sentio Shari'ah Supervisory Board. Sanlam Private Wealth's Shari'ah platform assists with the distribution to charities. Charities who have benefitted in the past includes the Mustadafin Foundation and Gift of the Givers. The Trust is an independent organisation and is responsible for all charitable allocations. The Trust contributes towards four primary sectors: education, health, social development and poverty alleviation.

Donated to a registered charitable organisation for charitable causes in the areas of disaster relief, education, sport and healthcare. This is a peer group which consists of all funds with similar characteristics that have a performance track record of more than 3 years. Growth in emerging markets EMs is expected to accelerate to 5.

The outperformance of the US is likely behind us, as the boost from tax cuts diminishes and household income gains will likely stagnate this year. The reduction in liquidity and tightening monetary policy will also start to constrain economic growth. In Europe, the UK and Germany will see slower growth, but for different reasons. The UK will be weighed down by the Brexit uncertainty, while Germany is adjusting lower, given the late stage in its economic cycle, with above-trend growth.

In emerging markets, China is still adjusting to a change in growth drivers, towards consumption-led drivers, which structurally imply slower economic growth. In addition, the trade war with the US should have a negative effect on growth, but should be offset by monetary and fiscal stimulus, which the Chinese authorities have embarked on.

The balance of risks to this outlook is tilted to the downside, owing to political risks in the US, UK, China and several other EMs holding elections this year. Political risks necessarily create policy risks, in addition to the ongoing trade wars, Brexit and Italian debt issues. However, we believe that the biggest risk for markets remains the US Fed rate hiking path, which at this point, looks set to deliver one or two hikes, at best, which will not trigger a risk-off trade.

Global inflation to stabilise, as a result of a fall in energy prices and stable exchange rates Following a rise in the annual global headline inflation rate, to 3. DMs are expected to change from 2. US, Eurozone and UK inflation rates are expected to change from 2.

In EMs, Chinese inflation is expected to accelerate to 2. Other EMs should see varied inflation dynamics, which we believe will offset each other and leave the EM average stable, below the five-year average.

Gradual monetary policy tightening a reprieve for emerging markets With lower and stable inflation dynamics in DMs and EMs, respectively, we expect monetary policy tightening to be more gradual than was anticipated last year.

The US Fed will likely hike once or twice, at most, in , down from three times previously. Markets are pricing a 35 basis point increase, to 2. In EMs, we expect more stable interest rates, compared with the previous year, with fewer countries hiking policy rates. If the ANC maintains or gains more support at the polls, it will be market positive, as it will mean that President Ramaphosa has a clear mandate from the electorate to push through the much-needed economic reforms that will boost economic growth.

We believe this is the likely outcome, so we expect local equities to outperform local bonds. Two aspects that are of concern for markets are the intention to look into prescribed minimum assets for pension fund investors and the nationalisation of the South African Reserve Bank SARB. Will prescribed minimum assets be imposed on pension funds?

Talks on tapping into prescribed minimum assets are not new and they seem to resurface around national elections and disappear soon after. Currently, there are no prescribed minimum assets, for developmental purposes, for pension funds in South Africa. If prescribed minimum assets were to be made into law, it will distort investment outcomes and prejudice clients whose pensions are managed by pension funds. However, we do not believe that prescribed minimum assets will be made into law; however, it remains a low probability event.

Will the SARB be nationalised? As it relates to the nationalisation of the SARB, two aspects need to be separated: ownership, and mandate and independence. The ownership of the SARB does not affect its mandate and independence. In any case, there are other central banks that are owned by their government that are independent in how they achieve their mandated objectives. Given that the independence and mandate of the SARB is prescribed in the Constitution, changing that will require changing the Constitution, which will be a far more difficult task to do without thorough economic justification.

We believe that the SARB will not be nationalised and its mandate and independence will not be changed. Economic growth will marginally recover Given our expectations on the political outcomes, we believe economic growth will recover to about 1.

The recovery is premised on a rebound in household consumption and fixed investment, especially in the second half of the year. It is a wait-andsee before elections in May, with few economic reforms and, as a result, little private sector investment. Even after elections, it will take some time to re-organise government and pronounce and implement policy.

Therefore, a pickup of growth is a story of and beyond. The decline in oil prices and slightly stronger rand against the US dollar has resulted in cuts in petrol prices in December and January. However, market expectations are that oil prices will increase and the rand will remain slightly weaker.

Food price inflation will also likely rise as a result of poor rainfall in major maize production regions. These factors will push inflation risks to the upside for the year. What remains supportive of a better inflation outlook is the fact that demand-pull inflation remains minimal.

Asset allocation Return expectations better in , but still low The weak asset class returns experienced in are expected to improve in , but remain low, still affected by the tighter Fed monetary policy, weaker global growth and declining global liquidity. Given that pension fund portfolios are long term, we centre our investment outlook on the five-year return outlook, rather than on one year. The low-return theme remains intact. There is still a strong case to use alternatives, in the form of both private equity and hedge funds, to mitigate against downside risks and potentially bolster returns.

DM equities have the added benefit of the global opportunity set, which is a slight constraint for South African equity. However, growth is not the only factor assisting EM equity prospects. Valuations corrected substantially in late , making them more attractive than levels seen at the start of US dollar strengthening risks cannot be ruled out while the Federal Reserve is still expected to hike interest rates, but the US dollar is closer to the end of its strengthening cycle than the start.

After falling Valuations are certainly better, but constrained economic activity should keep the return outlook lower than long-term historical averages. Unlisted South African equities are expected to provide a premium above listed equity, as they did in The rise in global interest rates in implies that the five-year return prospects for global bonds have improved.

Bonds could also become a useful diversifier as the end of the US business cycle nears; however, five-year real return expectations remain negative, in US dollar terms, as interest rates are low and rising, while inflation is ticking higher, as a trend. After years of ultra-low interest rates and inflation in the DMs, we cannot discount the risk of a change in conditions towards higher inflation and interest rates, which would be a negative outcome for global bonds.

Global bonds are still considered an unattractive asset class, over the long term, as a result. Despite ongoing credit rating concerns, owing to fiscal deterioration, South African bonds continue to offer reasonably attractive return prospects, as a result of elevated real yields.

US short-term interest rates have risen to the highest levels since , making the US dollar cash a reasonably attractive asset class, in the face of shorterterm financial market volatility. This is a dramatic shift from the last 10 years, when interest rates were at the zero lower bound. US interest rates are also noticeably higher than their developed markets peers, because the Fed has continued with its tightening cycle, while other global central banks remain very cautious.

For this reason, cash allocations need to account for geographical concentration. Longer-term return expectations from cash are unlikely to compete with growth assets. Local cash return expectations benefit from the same dynamic as bonds, with positive real return prospects over the coming years. Prudent SARB monetary policy is the major contributing factor to positive real interest rate conditions.

Given the degree of volatility in financial markets and the risks attached to equity, cash presents periodic attractiveness despite its low long-term real return expectation. Such projections are subject to market influences and contingent upon matters outside the control of Alexander Forbes and therefore may not be realised in the future. Historical returns are no guarantee of future performance. Investment management fees are intended to compensate investment managers for their time and skill to manage the assets of a fund, and are usually in the form of a percentage of the assets managed.

The main types of investment fees are annual base fees, with some funds charging an additional performance fee. Fees can be quoted on a fixed basis or a sliding scale. The performance fee is generally charged when the manager outperforms its specified benchmark. The manager therefore earns a percentage of the investment profits often both realised and unrealised. Alexander Forbes Fee Study The purpose of the Alexander Forbes Fee Survey is to create transparency and visibility of fees charged by the investment industry for institutional pension fund mandates.

The main benefit is to provide trustees, asset consultants, and advisors with a framework to benchmark the fees that they are being charged. The fee survey utilised data over a five year time period i. Data was obtained through liaising and collecting data from asset managers and the validity thereof was checked. Limitations of study: 1. The universe was restricted to asset managers that participate in the Alexander Forbes Surveys.

Participation in the survey was voluntary, and therefore selection may be biased 3. An actively managed investment objective that seeks consistent, positive returns regardless of whether markets are rising or falling; and without reference to a benchmark index for comparison. An actively managed investment framework where the asset allocation, strategies employed and risk assumed to achieve the specified investment objective is delegated to the investment manager. Active Fund Management An investment approach that relies on the belief that it is possible to outperform the market.

Typically an actively managed fund would select asset classes and investment securities that are expected to perform better than the market or benchmark. An independently constructed reference usually a publicly available index that sets an objective rate of return the neutral position that should be used to test the effective implementation of an investment strategy. A good benchmark will also be representative of the asset class or mandate and is investable itself.

A popular index used to benchmark performance for South African fixed income bond portfolios. This index represents a weighted basket of the top 20 South African bonds ranked dually by market capitalisation and liquidity. Alpha Alpha is a measurement of the performance of an investment portfolio against a benchmark. The alpha is the return the fund or portfolio makes, relative to the return of the benchmark. Annualised Return To convert an investment return over a period other than one year into an equivalent one year rate of return for comparative purposes.

Annualising returns for periods shorter than a year is not recommended. Asset Class Categories of investments that behave similarly and are subject to similar market forces. Major asset classes include equities shares , fixed income bonds and cash , commodities and property. Debt issued by a government or a company, typically promising regular payments of coupons interest on specified dates with a final capital payment on the maturity date.

It can be viewed as a loan given to bond issuers by bond holders. This index represents a weighted basket of SA Government issued inflation linked bonds calculated by Barclays Capital. This is usually considered the risk-free asset. A portfolio strategy to reduce exposure to risk by investing in various instruments or asset classes, such as equities, bonds and property that are unlikely to move in the same direction at the same time.

In other words, the process of spreading investments among different instruments or markets to reduce the overall risk or loss if one performs poorly. Composite Dispersion The extent to which the returns of all portfolios within a composite differ. It can be measured in different ways, including: the difference between the maximum and the minimum return range ; the difference between the 1st and 3rd quartile inter-quartile range ; the standard deviation of returns, or mean absolute deviation.

Duration Duration is a measure of interest rate risk for a bond or portfolio of bonds. It measures the sensitivity of the value of a bond — or collection of bonds — to a change in interest rates. A compound rate of return that expresses the relationship between the initial investment and the returns earned on that investment, incorporating future returns which are earned on past returns.

For most investors, this is the most accurate way to calculate their returns as most investors will leave their returns in an investment. The effective rate converts the compounding rate of return into a simple rate of return. This means that the effective rate of return can simply be multiplied by the investment period to calculate the cumulative rate of return.

It is set when the bond is issued and is usually related to the nominal value of the bond at the time of issuance. A major category of asset class, which is a commonly used name for ordinary shares, representing ownership in a company. The owner of the share shareholder will generally be able to vote on company issues; and will be entitled to dividends declared. CPI is an estimate of the inflation rate measuring the price of goods and services in the economy. A major category of asset class that includes cash, nominal bonds, inflation linked bonds and credit instruments.

A type of bond issued by a non-governmental entity. These bonds typically carry a higher risk than government guaranteed bonds, e. Credit Risk Credit risk refers to the risk that a bond issuer will default on any type of debt by failing to make required payments, i.

Cumulative Returns The cumulative return for a portfolio or an asset is the cumulative compound return over the full length of a specified time period. The percentage measure of this return is not annualised and as such represents the actual total return of the portfolio or asset over the period.

By annualising the percentage figure, one can calculate the average annual return of the portfolio or asset over the period. Defined Contribution Employer and employee contribute an agreed amount every month. When the employee retires, the accumulated capital amount and growth are used to purchase a pension from a third-party supplier.

Developed Markets A developed or an advanced market in investing terms is a country that is most developed in terms of its economy and financial markets. Frontier markets are less advanced capital markets in the developing world. Frontier markets are countries that are more established than the least developed countries LDCs but still less established than the emerging markets.

Hedge Funds These are usually absolute return investment strategies that use alternate investment techniques e. The funds can be used in a Regulation 28 strategy but are not compliant as standalone products. Inflation The increase in the general price level in the economy.

The inflation rate is calculated by defining a basket of goods and services that a typical consumer would consume and calculating a weighted average of the prices of those goods to arrive at a single percentage number, e. An inflation linked bond is a type of bond where the final capital payment is adjusted by the inflation rate for the term of the bond. A framework of principles and way of thinking about markets that underlies the beliefs and approach of an investment manager.

It drives which asset classes and investment securities to include in the investment portfolio. It can be used to describe the style of a manager. Information Ratio A risk-adjusted measure of return calculated by dividing the active return of a fund by the tracking error of the fund.

Inter-quartile Range A statistical measure representing the difference between the medians of the upper half and the lower half of a ranked set of data. International Monetary Fund IMF The International Monetary Fund IMF is an international organization that aims to promote global economic growth and financial stability, encourage international trade, and reduce poverty. JSE Johannesburg Securities Exchange Currently the only South African Exchange which offers a centralised trading platform to capital markets across a diverse set of investment securities, in particular, equities, bonds, and derivatives.

Long Position It is a positive holding in a portfolio that results from buying investments in the portfolio. This is done when the manager believes that the value of this investment security will increase in the future and he will be able to sell it for a higher price and create a profit. This is directly opposite to a short position. Leverage It is a holding in a portfolio that results from using complex alternate trading techniques that allows the manager to buy investment securities with money borrowed or by utilising collateral as a means of payment.

Beating the median cumulative return by 4. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request. The value of your investment may go up and as well as down as past performance is not necessarily a guide to future performance. The performance for each period shown reflects the return for investors who have been fully invested for that period.

Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and the dividend withholding tax. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of the capital or returns in a portfolio, A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. For any additional information such as fund prices, brochure and application forms please go to www.

Modified duration is a type of duration measure which measures the approximate sensitivity of the value of a bond — or collection of bonds - to a change in interest rates, assuming the cash flows remain unchanged. As such, it is only appropriate for bonds with no embedded options. Maximum Drawdown A risk of loss measure that is calculated as the maximum loss incurred by an investment over a stated time horizon.

Mean Absolute Deviation A measure of dispersion calculated as the average of the absolute differences between each value and the mean in a data set. Measures internal rate of return, to identify when cash flows are entering or exiting an investment by discounting cash flows to the beginning value.

Murabahah refers to an installment credit agreement for the sale of tangible goods. The seller acquires an asset, which the buyer agrees to purchase at some point in the future. The seller is entitled to a profit, as long as the exact markup is disclosed in the contract. Payments may be spread out over time. The index includes a collection of stocks of all the developed markets in the world, as defined by MSCI. Investment limits set by the Pensions Fund Act on retirement funds to protect against imprudent investment decisions.

Overweight Exposure to a specific investment security or asset class in a portfolio which is higher than the proportion it represents in the market index or benchmark it is being compared to. Passive Investing An implementation approach of a specialist fund strategy where the need to outperform the benchmark is not required in order to meet the investment objective. The specialist investment strategy is invested in passive funds.

Not to be confused with Passive Fund Management. Typically the investment portfolio will mirror the holdings of a market index. Passive managers believe that this is a more efficient and cost effective way of accessing the risk and return profile of an asset class or investment style. Pooled Portfolio Funds from many individual investors that are aggregated for the purposes of investment, as in the case of a retirement fund.

Investors in pooled fund investments benefit from economies of scale, which allow for lower trading costs, diversification and professional fees. Pooled funds are generally backed by a policy of insurance. Shariah prohibits Muslims from profiting, even indirectly, from unacceptable practices, so investors are expected to account for and give away any income derived from riba or other haram sources.

Return Percentage increase in the value of an investment over a period of time, expressed as a percentage of the value of the investment at the start of the period. All returns in this survey are calculated as Time Weighted Rates of Return. Risk Risk is a very generic term used to calculate either variation in returns or as a measure of losses. Volatility is usually used as a proxy for risk that measures variation.

Maximum Drawdown is usually used as a proxy of risk that measures loss. Rolling Return A time series of a rate of return with the same time horizon for a portfolio, asset class or investment security. It represents a realistic way of reporting returns which takes into account different market and economic environments.

Scatter plot A diagram illustrating the relationship between two sets of quantities using dots that can be used to generate a line of best fit. Sector All instruments within a particular area of activity or industry for an asset class. A simple rate of return that expresses the relationship between the initial investment and the rate at which returns are earned on that investment, ignoring any ability for further returns to be earned on past returns.

A statistical measure representing the difference between the maximum and minimum values in a ranked set of data. Real Return Portfolios An alternate name for a portfolio using an absolute return investment strategy. Segregated portfolios are not pooled with those of other investors and so the performance and expenses of an investment account are not affected by the activities of any other investors in the portfolio.

Risk adjusted return ratio of return per unit of risk. It is calculated as excess return over the risk-free return divided by volatility. An investment technique that periodically adjusts the SAA to take advantage of opportunities in the market in order to enhance returns in the short term; and maximise risk adjusted returns. It is a negative holding in a portfolio that results from using complex alternate trading techniques that allows the sale of an investment security that is not owned.

This is done when the manager believes that the value of this investment security will decrease in the future and he will be able to buy it back later for a lower price and create a profit. This is directly opposite to a long position. Specialist Fund Strategy An investment approach where the asset allocation, investment strategies employed and risk assumed to achieve the specified investment objective are explicitly defined and not delegated to the investment manager.

A specialist investment strategy may be implemented actively or passively. Specialist Mandate A mandate given to an investment manager to manage specific asset classes equities, bonds, etc. Time-Weighted Rate Of Return The compound rate of return over a stated evaluation period of one unit of money initially invested in the portfolio or strategy.

Time Horizon The time period relating to the rate of return measurement calculation. It can also reference the time set to meet a certain investment objective or goal. Interestingly the number of constituents can exceed 40, as some companies issue multiple share types e.

Investec, Mondi. Tracking Error Measure of variability of returns relative to benchmark or index. It is usually expressed as an annualised standard deviation of active returns. A popular index used to benchmark performance for South African cash portfolios. This index represents a weighted basket of money market instruments of different investment maturities such as NCDs and Call Deposits.

Exposure to a specific investment security or asset class in a portfolio which is lower than the proportion it represents in the market index or benchmark it is being compared to. SAA Strategic Asset Allocation An investment technique that sets the medium to long term allocation to asset classes which will primarily meet the investment objectives within a defined level of risk.

Used primarily in specialist fund strategies. This index represents a shareholder weighted basket of companies listed on the main board of the JSE with all constituents down weighted by applying an alternate free float known as the SWIX free float. Sukuk Sukuk are asset-backed securities designed to provide a relatively fixed stream of investment income without violating the Islamic prohibition on interest.

Instead of interest payments, sukuk investors receive a pass-through of income generated by the underlying assets. Volatility Is a proxy for risk and is calculated as the annualised standard deviation of monthly returns. Yield To Maturity An estimate of the rate of return that would be earned on a bond if the bond is held to its maturity date. It assumes that interest earned is reinvested in the bond. Answer: Both By strategically and intelligently combining both active and passive investment approaches, we aim to provide retirement funds with a greater probability of beating their long-term investment benchmarks on a net-of-fees basis.

Not only have we been using this specialist approach with great success for more than a decade, but also for the largest and most prominent retirement funds in South Africa. Contact us today to find out how we can assist your fund.

There may be products of the nature referred to in this advertisement in South Africa that are currently not regulated by the Financial Sector Conduct Authority of South Africa. The investments described in this advertisement are generally regarded as medium to long-term investments. The value of investments may rise as well as fall and you may not get back the full amount you invested.

The funds or portfolios mentioned are market-linked and there are risks associated with investments in market-linked financial products. Fluctuations or movements in exchange rates may cause the value of underlying investments to go up or down. All information provided is historic. Who is your FAIS complaints officer? Are you GIPS compliant? No By whom have you been verified? Investment philosophy 27four focuses on building well-diversified portfolios that are linked to a broad spectrum of investor goals and appetites for risk.

They believe that asset allocation is the primary determinant of variation in portfolio return and is the cornerstone of portfolio construction. Their skilled investment team is experienced in the application of quantitative techniques to identify the sources of asset class returns across different market cycles to derive their long-term asset allocation views.

Core to their investment philosophy is risk mitigation. Rigorous risk management and monitoring is applied at every level of their investment process and equal importance is given to business, compliance, operational and administrative risks as is applied to investment performance risk. Ownership What is the ownership structure of the company? Fatima Vawda; Vic du Preez Do staff and management have an interest in ownership?

Please provide the percentage held by staff and management: Yes. History When was the company established? Level 1 By whom have you been accredited? Investment mandates What are your total assets under management? Investment philosophy Our investment approach is centered on the principle that the market does not efficiently price securities at all times.

We therefore believe that stock selection through bottom-up fundamental analysis can out-perform over time. We follow the same investment approach across all our funds. Although we focus primarily on bottom-up, fundamental research, macroeconomic views play a supporting role in portfolio construction. Who are the directors of the company? Cy Jacobs and Steven Liptz Do staff and management have an interest in ownership?

Please provide the percentage held by staff and management: All team members receive a modest base salary. Majority of compensation is derived from bonuses which are linked to the performance of the funds. Bonuses are paid quarterly. Do staff and management have an interest in ownership? We believe that markets are inefficient and that through thorough research we can identify companies that will show superior earnings growth over the longer term which is not reflected in current valuations.

Similarly we believe we can identify companies where current valuations overvalue their future earnings growth potential. Level 3 By whom have you been accredited? Empowerdex Date of accreditation: Tim Howse eComply Please provide the link to the complaints policy on your website: On request. Abax a standalone entity and is not part of a bigger group of companies. When was the company established? Investment philosophy The Absa Alternative Asset Management Pty Ltd AAM team specialises in the design and management of index tracking, alpha generating Smart Alpha , absolute return, overlay protection, alpha transport, hedge fund and other alternative investment strategies.

Portfolios are designed to meet the unique goals of each investor with a high degree of certainty, in a cost-effective way, by using a range of traditional and non-traditional building blocks. Please provide the percentage held by staff and management: No. Level 2 By whom have you been accredited? Investment philosophy We are active, pragmatic vaue investors aiming to consistently achieve excess risk-adjusted returns. Yes By whom have you been verified? R billion Please detail the mandates you currently manage and the size of each of these mandates: Institutional: R Sc, B.

Sc Hons , B. Investment philosophy The Absa Multi Management portfolio management process is built around the five key investment disciplines of asset allocation, manager selection, strategy selection, blending and optimisation as well as risk management.

In applying this multi dimensional investment process, the interaction between the key contributors to superior performance is examined for each mandate. Samantha Padayachee Please provide the link to the complaints policy on your website: www. The Directors are at a Absa Group Level. Absa Investment Management services , Absa Multi Management List of mergers that have taken place since being established: None. Investment philosophy Active Equity: Track record of 10 years.

Smart Multi-Factor Equity: Track record of 7 years. Uses systematically driven fundamental security selection and statistical trading models to manage a portfolio designed to outperform the SWIX benchmark. The portfolio is designed to add value in a risk-managed framework. Balanced Fund Global Exposure : Track record of 6 years. The fund invests in domestic and global equities, fixed income as well as derivatives instruments.

It utilises a systematic return modelling process and a disciplined investment methodology. Local Balanced Fund: Track record of 6 months. The fund invests in domestic equities, fixed income as well as derivatives instruments. Please provide the percentage held by staff and management: Staff and management own Date of accreditation: DS Campouroglou Please provide the link to the complaints policy on your website: www. Investment philosophy Philosophy and style AFC employs a multi-disciplinary approach to asset management, involving fundamental as well as behavioural technical forms of analysis.

The investment style is thematic, with stock selection reflecting those themes believed to be impacting the investment environment at any point in time. As thematic investing relies on understanding the changes within economies, its implementation will result in portfolio structures that are not carbon-copies of market indices.

A by-product of the thematic and behavioural approach is that views will sometimes be taken against market consensus, but resulting in superior performance at lower than average risk. Sold on to T-Sec in Management buy-back in None By whom have you been accredited?

Are you GIPS verified? By whom have you been verified? Investment philosophy Afena follows a valuation based investment approach. Their investment philosophy is to buy businesses below their assessment of intrinsic value.

They estimate the value of a business based on its normal through the cycle operating performance. This also means they tend to favour businesses they understand with good long-term economics. Afena is a bottom-up stock picking house with a strong commitment to insightful proprietary research. They are disciplined and consistent in the execution of their philosophy. The company was established on the 1st of November List of mergers that have taken place since being established: There have been no mergers since the establishment of the company.

What is the ownership structure of the company? Alexander Forbes Investments is a subsidiary of Alexander Forbes Who are the directors of the company? In pursuit of certainty we set out to understand your circumstances and risk tolerance to set our clear goals. We integrate your investment journey and outcome, as well as the overall client experience to break the cycle of not being able to retire comfortably, of disappointing investment outcomes and of indecisiveness, fear and anxiety around investment matters.

Because investments are managed to achieve an outcome, the options available for implementation are vast, making our approach more flexible and adaptive to different market cycles than a traditional investment approach. Gigi Vorlaufer Please provide the link to the complaints policy on your website: www.

Investment philosophy Our philosophy is based on the belief that the market continually and regularly misprices assets. Mispricings occur regularly because investors either underestimate risks or do not recognise potential. We try to understand these risks and appreciate the scale of opportunities better than the market does.

Significant opportunities are created for those few who are diligent with the fundamentals. Our ambition is simply to buy a share where the market has undervalued it relative to intrinsic value or to sell a share when the prevailing price is far in excess of intrinsic value. In everything we do we exercise caution and act conservatively. We express this by including a wide margin for error in forecasting and by limiting our exposure to unquantifiable risks. Empowerdex Date of accreditation: Apr Allan Gray is a privately owned company.

Please provide the percentage held by staff and management: Past and present executive directors are shareholders of Allan Gray Group Proprietary Limited. Intrinsic value is calculated using a number of methodologies but is usually defined as the discounted value of expected future cash flows. They typically buy shares when research and analysis indicates that the intrinsic value of the company far exceeds its market price, in anticipation of the price rising to its intrinsic value.

Level 4 By whom have you been accredited? Their solutions are engineered through sophisticated fund management techniques and are actively managed by investment professionals with relevant experience and expertise.

Resultant solutions focus on capital preservation and capital growth which is achieved through rigorous bottom-up analysis of the key drivers of volatility in portfolios, and the blending of skilled practitioners. Alpha Asset Management has developed a unique investment process and framework for analysing and monitoring. They recognise the importance of qualitative and quantitative factors which drive return, volatility and predictability.

What are your total assets under management? Investment philosophy We seek to provide sustainable risk adjusted returns over the long term. The company became operational as of 1 December List of mergers that have taken place since being established: None Aluwani was created out of a management buyout at Momentum Asset Management. Section Six As asset managers and investors have grown to recognise this reality, the attentiveness to align societal or environmental benefits with investment returns has gained greater importance.

The local stock market has delivered disappointing returns over the past five years, barely beating inflation. It has been a painful period for equity investors, not only relative to the great returns we have seen in the past, but also relative to the returns local investors could have generated by investing offshore.

In this section we also provide an economic review of what happened in Section 3 provides the investment outlook for the global and local economy. This section also features an article which looks at sustainable investing providing an African outlook. We also feature perspectives of three black-owned asset managers on some issues of transformation in the investment industry.

A glossary of commonly used investment terms is included. Over the long term, environmental and social issues pose some of the biggest threats to the global economy. Rankings are based on the Total AuM figures Please note that due to standardisation methodology, numbers may be overstated. Ashburton Investments is fully invested in the outcomes of our clients. Through providing access to fixed income and private markets for diversified sources of returns, like private debt, impact, renewable energy, mezzanine finance and private equity, we have committed to helping our clients achieve better results for themselves, and all those who depend on them.

Speak to our specialist institutional distribution team on or email institutional ashburtoninvestments. Investec Asset Managers leap-frogged Coronation into second place with an increase in assets of The June survey universe grew by 6 new additions compared to the 60 investment managers in the June survey.

Asset Distribution to Manager Size There has never been a better time to be an investor. The chance to explore, to create, to uplift, to learn, to innovate, to build, to do better. And when you do, we can help you make the most of it. To see how our innovative portfolio solutions are taking advantage of the potential we see in the world, visit www. Ranked 14th of funds for 3 years and 9th of funds for 5 years to June A schedule of fees can be obtained from the Manager. There are risks involved when buying, selling or investing in any financial product.

The value of financial products can increase as well as decrease over time. Asset Distribution to Manager BEE ratings The asset distribution shifted in from levels 3 and 4 with a significant increase among the level 2 contributors by Looking at the total AuM of the top 5 black-owned asset managers in the June AuM survey, it is encouraging to note that compared to the AuM of the top 5 black-owned managers in the June survey, we saw growth of Prescient improved their rating from a level 3 contributor in to level 1 in After improving their rating from level 6 in to level 5 in , Foord was unrated in Seventy percent of the top 10 asset managers were rated level 2 contributors, with the remaining managers being level 1 and 3 contributors.

For the first time we have 2 level 1 contributors in the top 20 managers ranked by size. There are 2 investment managers in the universe who are on level 8 and 6 who are unrated. BEE ratings according to Manager Distribution A person investor group drawn from institutions in 12 countries was supported by a person group of experts from the investment industry, intergovernmental organisations and civil society. Since then, both the number of signatories to the principles and representative assets under management have grown exponentially around the world, to over 2 and USD90 trillion, respectively.

Somewhat disappointingly though, adoption of the RI approach by African investors seems to have stalled. South Africa, the market once seen as a vocal advocate for RI and a definitive leader on the issue for the region, complete with progressive regulatory frameworks, has been largely silent in terms of advocacy and predominantly uninspiring in RI activity over the last few years.

Asset owners have been particularly slow to adopt the principles, preferring instead to delegate or in many cases abdicate entirely their responsibilities. This attitude is not unique to African asset owners but in a market this size, the impact it has on investor attitudes and behaviour is significant. While there are examples of investment managers that are implementing truly innovative approaches and working hard at refining what it means to be a responsible investor in practice, asset owners — and other stakeholders — may and should be disappointed to learn that a far greater proportion of managers are paying alarmingly little attention to the issue.

In a world where ESG integration and RI are receiving increasing attention globally, how are those local investors already committed to RI doing? Are they ahead of the curve? Of the 66 investment manager signatories that operate out of this region, 46 are based in South Africa.

The list includes a selection of some of the larger as well as some of the smaller managers in the market. Using the PRI data stores1, we can reflect on the relative performance of these managers going back as far as For the purposes of this assessment, we will review signatory assessment results related to strategy and governance to identify key trends in this component of RI.

It was developed with investors, for investors. Signatories are required to report on their responsible investment activities annually. More detail on the reporting framework and the assessment process can be found on the PRI website. Figure 1: SG module performance of global, emerging and South African Investment Managers median represented by striped bar ; data.

The data reveals that the median score for South African managers for this section is an A, which aligns to the median score for investment managers globally, and is higher than the median score for emerging market managers, which rings it at B. So, one could consider South African investors to be either emerging market leaders or developed market middle-of-the-road performers when it comes RI.

Figure 2: PRI assessment performance of South African investment managers over time strategy and governance. At the same time, the proportion of South African managers achieving an A in this area is dropping, while the number of managers receiving a B is increasing. This suggests that, when it comes to strategy and governance in relation to RI, South African managers are not keeping pace with the evolution of international best-practice standards.

The issues identified as those which African investors feel present the greatest threat to the sustainability of their investments are:. Of the issues identified, climate change is arguably the most pressing — in the sense that it is time sensitive it is happening now and because it exacerbates the risks presented by almost every other ESG factor that investors could possibly face. The consensus in the room was that if asset managers in South Africa are to stand a chance at even generating — let alone maximising — sustainable long-term returns, it is in their interests to ensure that their portfolio companies have in place appropriate policies and practices to identify, assess, monitor and manage these risks.

Yet, despite the crushing importance of the issue, of the South African investment managers required to submit reports to PRI in , less than a third opted to report on voluntary climate change indicators. Whether investors like it or not, a massive shift is coming. In this context, the task now at hand for South African investors is one of pre-empting disruption and moving proactively to mitigate the worst of the risks and to claim their share of the rewards that will undoubtedly be available to first movers.

This is no small feat — especially considering that to date we seem to be struggling simply to keep up with international best practice — but equally, if managers want to stay in business, there is no other option. What is responsible investing? Before delving into the regulatory environment surrounding responsible investing RI , it is necessary to explore briefly the concept of RI itself.

RI has suffered a fractured acceptance by the global investment community over its history. The idea has found representation in various forms of investment approaches. Think of it as a concept that has evolved in its naming convention, emotive responses, culture, morality, geography, applicability and theme that is being explored through a time horizon of an investment. The first, and oldest, practice affiliated with RI is the approach known as negative screening.

This is where investments are excluded based on morals or preferences. Thereafter, came the advent of community investments serving to benefit in times of crisis — something very much in play within South Africa today. This was followed by mission-based investments, positive screening and impact investing, all of which embodied a philanthropic contribution to primarily achieve a purpose, whilst providing positive social, environmental and financial returns thereafter.

As listed markets evolved, so did the accessibility of information which allowed investors to place a value on stewardship. We noted the advent of shareholder activism and corporate governance considerations experienced since within South Africa. Presently, there has been a growing level of stakeholder activism spurred on by the advent of social and environmental justice organisations, speaking in concert on matters that affect the destruction of value, financial or otherwise.

Regulatory backdrop Responsible investing in South Africa has endured a fair amount of regulatory developments over the past few decades, some of them albeit tacit in nature and others enforced through JSE listing requirements or pension fund law monitored by the regulator within South Africa, the Financial Services Conduct Authority. This article seeks to assess the progress made in terms of RI application and the acceptance of RI practices by the wider investment community.

Principles of responsible investment Over the last decade, considerable progress has been made, notably from the Principles of Responsible Investment PRI. The PRI has received widespread acceptance of ESG integration by a global base of academics, investment managers and asset owners. Today, it supports an international network of more than 2 investor signatories globally who have a combined asset under management of around USD90 trillion. The code specifically gives guidance on how asset managers should execute investment analysis and investment activities, requiring them to publicly disclose their policies and methods of incorporating ESG factors in their investment process.

More recently, the role of impact reporting from various bodies have found support as the globe seeks to address a growing set of negative externalities. Impact investments such as these are not homogenous in assets, geography, impact, investment objectives or outcomes. For this reason, the measurement or appreciation of the externalities that they seek to address is not immediately evident. At present, there appears to be a consensus around the 17 sustainable development goals 17 SDGs , as defined by the United Nations Development Programme, being incorporated in the measurement of impact footprints.

Regulatory fatigue? The local investment industry showed promise despite a challenging start in a concentrated listed market. This is followed up by the concentrated management of listed assets around R6 trillion at June 2 with the top 15 listed asset managers, out of a sample size of 65, managing around R4.

Some would consider it a niche market that requires regulation tailored for its needs rather than being forced by top-down, global practices. Since it established a presence in , the PRI has worked steadily with its member base to make the self-regulating framework more robust.

The South African member base sits at 46 to date and is seemingly flat-lining among the local asset manager community. One needs to critically assess some of the reasons listed by the asset manager network. There appears to be new signatories in globally, but none appears to be African as cited by an online publication.

Signatories are required to perform mandatory annual assessments to evaluate progress in incorporating ESG considerations in their investment processes, and to highlight areas of improvement. It requires a submission of RI practices from strategy and governance to asset class modules. Granted it does take upfront work of defining your investment process for ESG practices.

Nonetheless, the process does require that an evidence-based control framework be in place. It requires the articulation of a responsible investment philosophy, process and record-keeping of stewardship practices such as engagement with investee companies and proxy voting record-keeping.

New entrants to the industry may view this as a hurdle. There is, however, a case to be made that the cost of being in the business of managing private wealth or retirement nest eggs is a serious one, if not a privilege. Perhaps it does require a serious approach. One that requires these processes, PRI aside.

Pension fund Regulation 28 and the Pension fund Act Circular have, without the legalese, spelled out the following:. Prudent investing should give appropriate consideration to any factor which may materially affect the sustainable long-term performance of a fund's assets, including factors of an environmental, social and governance character.

This concept applies across all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment. Optically, the fees for managers at the lowest tier of AUM do not appear particularly onerous.

The average quantum of AUM of managers forming part of the remaining 50 managers, including multi-managers within the Alexander Forbes June AUM survey, is approximately R25 billion. The commensurate fees appear negligible. One could rationalise the cost by weighing it up against the value of the research output, thought leadership and direction provided by the PRI network across asset classes with respect to RI. The PRI allows for the submission to be non-audited but, of course, this development over time would curtail credibility.

There exist unique social nuances that beset African regions as well as other emerging markets. The matters of an environmental aspect, such as climate change — although very much applicable to African countries — require finesse given the glide path of commitments made in the Paris accord and detailed through the Taskforce on Climate-related Financial Disclosures guidelines. The ability to foster and shape the conversation around the definitions or factors that ought to be considered have been led by the developed world.

This is not levelled at the PRI specifically, but also at impact measurement frameworks where definitions of social aspects are still being debated robustly. Take, for example, contract labour being fair wage and competitive in the global landscape, but contested in South Africa given the possibility for worker exploitation. South Africa, as a relatively sophisticated financial market, should have a seat to influence definitions and roll-out of self-regulation measurement models. Uniform, vanilla definitions will not achieve desired outcomes.

That said, one cannot influence from the sidelines. The approach of managing assets in a vacuum is a worn-out excuse. The offshore earnings base of companies listed within the market capitalisation of JSE is significant.

Can one really expect to apply only a local legislation to these? Surely corporate regulation that South African listed businesses are expected to conform to in offshore jurisdictions is not contested but rather accepted as a price one pays for globalising a business?

It is a step in the right direction and therefore acceptable locally. There is a philosophical alignment between these guiding industry bodies, and their principles can be matched. However, an endorsement.

Consider the argument of conducting investment research once off albeit thoroughly, and not keeping abreast of changes and developments. Any analyst or portfolio manager cannot foreseeably extract value with this approach. Is there more to be said for an evolving process versus a static one? The larger asset managers can allocate time and resources to developing in-house depth in responsible investment activities and initiatives.

Emerging managers, however, can use efficient methods of achieving the high watermark of being a signatory. There are numerous examples at play, given the same constraints faced by emerging managers globally. For emerging managers who are sceptical about being a signatory to the PRI at this stage in their business lifecycle, there are case studies worth investigating that highlight methods adopted by their global emerging peer universe. The first King Code on Corporate Governance arrived in Very much tied to the dawn of democracy in South Africa, it included an aspect on affirmative action.

It focused primarily on aspects relating to boards and directors, eventually evolving to incorporate sustainability considerations in later versions. It widened its application to all types of business not just the listed. Importantly for investment managers, King 4 , Principle 17 specifically addressed the needs of the pension fund manager. Both require institutional investors to take ESG issues seriously. Where ESG integration is concerned, African private equity has been ahead of the curve compared to other markets.

The role of the multi-manager The role of the multi-manager is to ensure that we deliver on the promise of managing assets in a manner that provides a smoother investment experience for the end client. The skill and expertise to deliver on this span across research and portfolio construction to optimally blend a bevy of managers from the start-up to the established , asset classes, styles or risk premiums, listed or unlisted, local and global. The privilege of this vantage point comes with a level of responsibility, regulatory obligations aside.

This commitment hinges on the fact that we will influence and shape the market acting as an usher for change. We acknowledge all the approaches and practices adopted within the responsible investing umbrella. These include resource-constrained, emerging managers with limited RI practice. We contrast them with the manager that is bold enough to be an activist, despite not holding a single share in a particular company.

We challenge those with weak processes, and tick box articulation of responsible investing practices. Our manager research process penalises those who cannot evidence integration of ESG throughout the investment process from idea generation and portfolio construction to business management aspects of a strategy. We encourage reporting of proxy voting from everyone but make them mandatory for incumbents.

The role of the development finance institutions in influencing and making ESG very much a part of the term sheet of investments is commendable. The ability to meaningfully contribute to ESG as a driver of performance in unlisted markets is met with less resistance. The hedge fund managers locally and globally have been laggards in their commitment to RI. This is partially due to a niche investor base. Another reason cited by hedge fund managers is that they may, at times, make use of derivative instruments as opposed to actual share ownership.

In this instance, the actual ownership of assets resides with the provider of the instrument and not the manager. Voting as a result would not be necessary. More work needs to be done within this asset class. Is the idea of RI within South Africa reaching its peak and therefore ex growth? The consideration that South Africa is a mature market relative to the other African peers, and certainly some of the other emerging market peers, is fair. To be genuinely competitive one needs to keep the eye on the local game or bourse, bearing in mind a global mindset.

Markets are intertwined and global headwinds influence South Africa. The avenues for opportunity in infrastructure, thematic, developmental investments are more pressing than ever and ample opportunity for responsible investing practice evolution exists. The endorsement of responsible practices by boards of pension funds suggests that RI growth is still very much on the horizon. Our experience does suggest that there is more than meets the eye. The road to complete ESG integration, transparency through disclosure, appreciation of quantitative and qualitative, financial and non-financial risks is a long one.

The efficient market hypothesis has much more to play out for complete price discovery to be coined. At this juncture, there is still a need for influence and change by the responsible steward, green peace analogies aside. For South African institutional investors, a struggling economy, governance crises and ruminations regarding prescribed assets have highlighted concerns surrounding the social and environmental impact of investments.

Improved access to information, policy shifts regarding the sustainability of investments1, the interests of the consumer2 and the state present investors with both risks and opportunities. Investment managers who can demonstrate how their diligence and skill can measure and leverage the impact of investing are likely to derive a new advantage for their investors and the long-term sustainability of their portfolios.

Concurrently, institutional investors hold the key to mobilising capital toward sustainable solutions that address, indeed reverse some of the damage. Bloomberg Intelligence demonstrates that half of. Investing for impact appears to be coming of age, applicable across asset classes and building a compelling business case with regard to investment returns6 in conjunction with widening market acceptance7.

One of the challenges to be overcome has been reaching conceptual consensus between practitioners, policymakers and promoters around definition and metrics to ensure consistent application and in time, comparability. Guidance Note 1 of PFA. Treating Customers Fairly. Impact Investing Market Map. Impact Measurement and Management Since , a global network of over institutional investors, asset owners, development finance institutions, academics and multi-lateral agencies have been working together to provide investors and enterprises with a coherent set of metrics, disclosure standards and frameworks for measuring and managing impact.

With less focus on definitions, IMM has become increasingly integrated into investment processes and increasingly focused on impact performance. The IMP built consensus around the five dimensions of performance that matter to understand any impact. A critical aspect of IMM involves recognising that all investments have an impact on the stakeholders that are connected to its underlying assets.

Examples include health repercussions related to the sugar and tobacco industries and, more recently, the public and investor responses to the coal industry related to carbon-based contributions to climate change To assist investors and managers, the IMP also built consensus around a logic to communicate the impact of underlying assets or enterprises across the investment value chain. Using this logic, the impact of an asset, or portfolio of assets, is the combination of its impacts on people and the environment.

The classification does not ignore the possibility that an asset, or portfolio or assets, may cause harm to stakeholders. Operating Principles for Asset Management. Over recent years, these approaches have been tested and applied by institutional investors, enterprises and other stakeholders in various geographies and sectors15 Bank of Montreal BMO Global Asset Management, USD billion AuM , applied the five dimensions to their existing impact reporting process and found that it provided them with a deeper idea of the scale and depth of their impact, in addition to the type of impact that their SDG mapping offered.

The implications and opportunities of these recent developments in impact reporting are as significant in South Africa as they are in the rest of the world. Indeed, the recent FSCA Guidance Note June nudges pension fund Trustees in the direction of greater accountability in their investor policy statements in light of the risks associated with SDG funding gaps and climate change mitigation. These impact measurement approaches illustrated above, present a compelling case in guiding investors towards contributing to the growing data and discourse on their impact through their investing, not only in relation to impact investments but all assets under management.

For each investment, detail and complexity can de adapted accordingly. To fulfill standards of rigour and comparability for adequate measurement and analysis, impact reporting is an intentional, evidence-driven discipline supported by the progressive shift towards the standardisation of terminology and data classification. IMM Education. With the prevailing economic, environmental, social and governance considerations that affect financial investment and impact performance, the availability of impact-oriented data sets contribute positively to improving financial analysis, reducing risk and enabling more robust decision-making.

In the context of the country and its particular economic and social challenges, South African investors have a role to play in leading the application and improvement of the tools to further the understanding and benefits derived from the impact of investing.

As new case studies continue to emerge, there is currently an untapped opportunity for impact-oriented investors and their investment managers to demonstrate their corporate citizenship and discover new competitive advantage in their local environment and international markets. Consider this carefully. That income is only meaningful if it can buy an adequate quality of life: access to adequate housing, healthcare, community support systems. Whether our housing will be wiped out every five years or so because of wildfires or tornadoes or floods triggered by climate change.

Whether the cost of healthcare, insurance, data and information processing will be at all controllable — and so on. Every investment we make — whether long term or short term, whether in a listed capital market or a private capital market, whether through a formal mechanism or an informal mechanisim — has an impact. As investors, we can either choose to understand what that impact is or ignore it. As fiduciaries for members, we cannot choose to ignore it.

We need to understand it. How effective would those investments be in ensuring that South Africa remains globally competitive as a country? Unlisted assets in the form of private equity, real estate and infrastructure present a powerful opportunity to scale up investments with impact when considered alongside listed investments like the JSE.

The unfortunate reality is that currently the listed assets and unlisted assets are most often considered in isolation and this potential is lost. The reasons have been well articulated — lack of policy implementation, breakdown in trust between private and public sector, and structural inequality. This framework of analysis provides a methodology that allows us to use unlisted assets to complement listed assets and use the portfolio as a whole to support — and perhaps even catalyse — sustainable economic growth.

This highlights a lack of reach and intention that underpins exclusionary investing. Reach is lacking even with such listed companies, as it serves members of the society with financial means and excludes those who need the benefits of the investments the most. The reality that many global investors are beginning to appreciate is that the listed capital markets in general appear to be getting further and further delinked from their initial objective of funding economic growth.

While this phenomenon appears to be impact primarily developed markets, South Africa appears to be behaving more like one of these markets. Creating a radically different framework for funding retirement investing The questions being asked here suggest that we will need a radically different framework for funding retirement investing. Realistically, because of the way the retirement industry seems entrenched around a singular approach to solving for funding, it is highly likely that we only see incremental changes over time to address this mindshift change.

But an even greater priority was to create a new governance framework that linked investment initiatives to viable economic imperatives. Since the creation of the division in , their sector specialists have undertaken the extensive task of:. Evolution requires new investment approaches, driven by topdown, multi-asset and sector selection strategies. Quarterly internal departmental briefings, in-house forecast model, integration with external sector or macro-economic model.

Thematic impact investing — Across multiple sectors — Quarterly internal departmental briefings, in-house forecast model, integration with external sector or macro-economic model. Manufacturing Project development partnership fund Established to increase delivery of investment strategy and catalyse pipeline origination.

Supporting investment process, origination and due diligence with market or industry research Source: PIC research. Benefits of aligning portfolios with economic growth By using this framework for allocation and investment decision-making, the process introduces a number of additional benefits that current allocation strategies may fail to incorporate:. Foundation research driven by global thematic investment trends and South African sector fundamentals Investment strategy background and objective.

The PIC Research and Projects Development was established in to ensure that the investments made are linked to over-arching diversification and alpha-enhancing sector strategies, resulting in increased economic growth and therefore increased employment. Sector investment strategies based on overarching macro economic drivers Taking into account 3 core pillars of each investment strategy.

The conclusion of these three steps is a model or reference portfolio of investments. An analysis is then undertaken of the gaps in the current compared to the reference portfolio for each sector. This is the most critical step as it provides strategic direction of where to invest in the unlisted market to close the gaps in the listed market.

Agribusiness — existing portfolio exposure to key drivers Sector portfolio exposure — listed against unlisted. Opportunity or risk to be considered Scramble for high-potential land Rising need for production efficiencies and enhancements Increasing demand for agricultural technology Need for emerging market infrastructure to unlock potential Changing dietary preferences grains to protein Increasing demand for consumer-packaged goods and beverages Long-term currency depreciation supports export industries Increasing import competition from developed market economies.

A high-level example of the first iteration of that process is shown below. Consideration and prioritisation are given to those areas which present strong value chain underpins and clear market growth aspects which support economic growth exports or imports. How can we make this process relevant to any South African retirement fund? Understandably, the full PIC investment process incorporates return assumptions for each element in an array of available strategies, sectors and specific assets.

By integrating a top-down macro-view with a bottom-up view on valuations, deriving return assumptions is a fairly robust process. But clearly investment professionals managing other retirement funds will each develop their own return assumptions for these investments. That said, we still believe perspective of portfolio analysis provides considerable value to any South African pension fund. We believe that our evolving understanding about what could be achieved through a more considered investment process will have a dramatic and irrevocable impact on how we approach pension fund investing in the future.

We believe the time to start engaging with this new thought process is now. Just as we can apply any risk model or ESG assessment to any pension fund, irrespective of the underlying return assumptions, so can we apply the PIC analysis framework to help trustees. The true value of Alexander Forbes is the power of one team. As one, we combine 85 years of knowledge to offer our clients a seamless experience.

Through a single platform, we share our expertise, experience and insights to strengthen our advice-led approach across our retirement, investment and health portfolios. Because as one, we can ensure the best outcomes to help our clients grow.

Go to alexanderforbes. The changes which took place in the calendar year are summarised in the below. Sources of performance Multi-Asset class portfolios build and implement their investment strategies based on a multitude of methods; the most popular being economic macro research; asset allocation modelling strategic and tactical ; relative asset class valuation; assessment of market risks; security valuation; portfolio construction and market hedging strategies.

The portfolio manager will also use the asset class exposures to manage an overall risk strategy. The year was dominated by US and China trade tensions, global economic slowdown, fears of a hard Brexit and global policy uncertainties. The year ended on a high note, with the global financial markets having the best performance since the global financial crisis.

Asset class returns in Q4 were strongly boosted by trade ease as the US and China reached a partial deal, boosting the global risk appetite. An increase in global liquidity by major central banks also supported the global financial markets, with investors buying emerging market equities and bonds compared to global bonds and US dollar cash. Global equity markets experienced a strong , returning resilient returns across a broad range of asset classes and geographies.

Global bonds underperformed equities for the full year as the global fundamentals improved, favouring risky assets. In the commodities markets, oil prices and gold saw strong gains of 5. South African markets delivered positive returns despite negative domestic fundamentals like power cuts, low business confidence, worsening fiscal constraints and a weak local economy.

Ultimately, the favourable global backdrop drove most asset class returns into positive territory. The ALSI returned Bonds and cash lagged equities in the year, with Property bucked the strong performance trend, returning 1. How South Africa Best Investment View managers performed For the year, most South African best investment view BIV managers kept their asset allocation relatively stable except for Allan Gray and Investec, who decreased their allocation to equities by 6.

All the managers in the SA BIV category had positive returns for the year except for Bridge, who posted a return of Nedgroup and Coronation were the two best performers for the year in the category. Their position in Naspers and Prosus also contributed positively to performance. British American Tobacco and Reinet Investments benefited from the banning of vaping flavours in the US and easing of US regulatory tensions regarding combustibles.

The worst performing manager for the year was Bridge. The Bridge Managed Growth fund maintained a full allocation to growth assets equity and listed property during Foord Asset allocation added value through the year with the meaningful allocation to government bonds making the largest single contribution to returns.

Equities also contributed positively to returns. The very low weight in struggling domestic property companies was positive. The holding in physical gold Newgold ETF also provided attractive double-digit returns. Fixed interest yield curve positioning and stock selection were also positive.

Property stock selection added value with most of the allocation in niche property companies Capital and Counties and Stor-Age. Prudential The biggest contributors were the overweight positions to stocks with exposure to global growth and foreign currency earnings like Anglo American, Exxaro, Sasol and Sappi, as well as global giants such as British American Tobacco. Detractors from relative return were the underweight exposure to stocks such as Sibanye, Northam and Anglo Platinum.

Domestic bonds also contributed favourably to the performance over the year. For the year, most managers in this category kept their domestic asset allocation relatively stable except for Obsidian who increased their allocation to domestic equities by 8.

Sasfin was the lowest at Kagiso was the best performing manager in the Global BIV category for the year. Excellent local and global stock selection as well as fixed interest instrument selection attributed to performance for Kagiso. Strong local equity contributors included Northam Platinum, Quilter and Aspen. Siemans, Prudential and Spire Healthcare were among the strong global equity holdings contributors. PSG had a disappointing year. Performance of the Balanced fund was primarily driven by the disappointing returns from local and foreign equities.

Asset allocation and fixed income selection added value but could not offset the effects of stock selection. After delivering a solid performance in , Rezco consolidated their position in the Global BIV category by once again being one of the strongest performing managers for the year ending The key driver of performance of the Rezco Value Trend fund was its investment in the Rezco Global Flexible fund, which produced a Domestic equity contributors included SibanyeStillwater and Northam Platinum.

Coronation ranked second and fourth respectively and Foord, fourth and twelfth respectively. Comments on the performance of some managers Allan Gray Underperformance could largely be attributed to stock selection both locally and offshore. Holding an overweight position in Sasol and Glencore and an underweight position in AngloGold Ashanti and Anglo Platinum was detrimental to performance. Absa The exposure to domestic equity added to performance from an asset allocation perspective.

This was, however, largely offset by poor stock selection. Low exposure to mining and resources shares detracted value. The low exposure to domestic bonds also detracted from performance. Coronation The large exposure to the PGM sector contributed meaningfully to performance for the year. The large position in Anglo American and the underweight position in Sasol also contributed to performance.

British American Tobacco, a stock which detracted from performance in , was up strongly during SIM Particularly strong positive contributions came from the large exposure to domestic equity and bonds. Global equities also delivered a strong performance for the year. Some exposure to local bank Additional Tier 1 AT1 paper delivered performance in excess of domestic equities. In addition, stock selection in global technology and consumer shares also added to alpha. An overweight position in fixed income also contributed positively.

The precious metal sub-sector was the largest detractor as STANLIB held an underweight position in platinum names and did not hold gold shares. The increase in equities was broad-based across, small, medium and large caps. They were boosted mainly by resource stocks and rand-hedge stocks within the industrial sector. The main drivers of resources were the rally in platinum and gold. Financials and SA Inc industrials underperformed, reflecting the local poor economy.

The economy saw the largest quarterly drop in a decade after the power utility implemented a series of power cuts in Q1 , resulting in a contraction of 3. Resources were the best sector in the year, returning It was followed by industrials, which returned 9.

Despite the dovish global central banks, financials marginally performed in , returning 0. The financial sector has a strong correlation with the performance of the local economy. Major economic events that drove the market in Trade tensions The positive sentiments around US—China trade talks have helped financial markets rebound in after returns were negative across the breadth and depth of major asset classes and investment styles. President Donald Trump signed off a phaseone deal with China in early December , reducing trade tensions between the two countries and averting the 15 December introduction of a new wave of US tariffs on Chinese goods.

The deal includes a promise by the Chinese to buy more US agricultural goods and a possible reduction of existing duties on Chinese products. The US agreed to a significant increase in purchases of Chinese agricultural goods in exchange for tariff relief. China committed to doing more to stop intellectual property theft and both sides agreed not to manipulate their currencies.

The partial deal will boost global sentiment, mainly towards emerging markets and risky assets but is also positive for global growth. However, our view remains that any deal reached will only be a temporary relief, as the trade war is a proxy for a technology war. However, deglobalisation is beyond the US—China trade tension.

Controls over foreign ownership on national security grounds are becoming more commonplace, suggesting that trade global policy uncertainties may continue to cause volatility in the global financial markets and hinder global economic growth. Slowing global economic growth Disappointing global economic data shows that the global economy has slowed down in The Chinese economy slowed to 6.

The economy grew by 3. The UK economy grew by 0. Growth was supported by strong household consumption in the quarter. The contraction in Q2 highlights that the Brexit uncertainties weighed on economic activities. Dovish major central banks In response to economic growth concerns, central banks exhibited panic and pushed out or postponed plans to increase interest rates and end liquidity withdrawal.

Globally, in central banks offered support to weakening economies through interest rate cuts and bond-buying programmes. The US Fed cut interest rates three times last year, to a 1. This was due to weakening global fundamentals and muted inflation pressures.

The Fed also started to buy USD60 billion worth of treasury bills per month in an effort to steepen the yield curve which had inverted. Given this, the US Fed is likely to keep rates unchanged this year unless global fundamentals take a turn and negatively impact the US economy.

Additionally, the ECB cut the deposit rates by 10 basis points to Meanwhile, the ECB reduced its inflation forecast to 1. This means that the ECB will not reach its target of 2. This ends the Brexit uncertainties that have negatively affected economic activity in the UK. Furthermore, Boris Johnson promised to guarantee that the Brexit transition phase is not extended, setting up a new cliff-edge for a no-deal split with the European Union at the end of The Labour Party suffered a devastating defeat and party-leader Jeremy Corbyn promised not to lead the party into the next election.

The British pound has strengthened against the US dollar. Middle East tensions The tensions in the Middle East caused volatility for markets and the global economy, as the region plays a vital role in the world economy through its oil markets.

The oil price rose by Heightened tensions in the region threaten the supply of oil to the global economy, negatively impacting the global economic activities. Power cuts A series of electricity blackouts — stage 4 load shedding loss of MW implemented by Eskom throughout two weeks in March — negatively impacted investor sentiment and business activity, resulting in a contraction of 3. The economy struggled to improve throughout the year due to deteriorating global fundamentals, low business confidence and lack of structural reforms to revive the local economy.

The market expected an expansion of 0. Inflation Tight domestic credit, weaker currency pass-through effects, and low economic growth have kept inflation contained in South African CPI decelerated to 3. Inflation averaged to 4. The SARB has cut rates by 25 basis points to 6. The muted inflation outlook and low economic growth saw the SARB unanimously cut interest rates by 25 basis points in January This fiscal outcome was worse than expected and was due to downward revisions in economic growth and shortfalls in tax revenue collections, more bailout provisions for Eskom and other state-owned enterprises SOEs while expenditure cuts have remained on the margin.

It is the only rating agency that still rates South Africa at investment grade. However, the downgrade has largely been priced in by markets, which suggests that the impact of financial markets will not be too pronounced. The agency, together with Fitch, already has the country in sub-investment grade. Visit www. Laurium is an authorised financial services provider FSP No The value may go up as well as down and past performance is not necessarily a guide to future performance.

A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Forward pricing is used. For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www. Because of you, we can invest in more of By teaching thousands of children to read, we build empowered communities.

This may lead to volatility of returns in the short term less than one year. The benchmark for our full discretionary funds is calculated in-house, using FTSE free market indices and estimated peer group weightings. Objective: The portfolios are balanced multi-asset class portfolios with exposure to both global and local assets, subject to the restrictions imposed by Regulation 28 of the Pension Funds Act and aim to maximise long-term more than 5 years capital returns.

Objective: The portfolios are balanced multi-asset class portfolios with exposure to global and local assets. Objective: The portfolios are balanced multi-asset class portfolios, subject to the restrictions imposed by Regulation 28 of the Pension Funds Act and aim to minimise the probability of short-term less than one year capital loss while targeting long-term more than five years capital growth.

Closer to the truth Our obsession with depth and detail brings greater understanding and better performance. To find out more, visit www. One of the first and most commonly referred to lessons of investing is to remove emotions from the investment decision-making process. However, this is much easier said than done. Behavioural finance is the field of study that aims to understand how investment decision-making in the real world behavioural finance differs from that prescribed by the textbook traditional or theoretical finance.

Traditional finance assumes investors are rational, risk averse and always seeking to maximise value. However, in the real world, the opposite may often be true, with irrational decision-making and inappropriate risk-seeking behaviour driving bad outcomes and nasty surprises for investors. Behavioural finance seeks to explain why investors sometimes fall into the trap of making decisions that are clearly irrational and sub-optimal for the investment objectives they are ultimately seeking to achieve.

Overconfidence and confirmation bias are perhaps the two most prevalent behavioural biases affecting investment decisions:. In other words, people fool themselves in trying to be objective, yet only paying attention to information supporting or confirming the theory and ignoring all evidence to the contrary. Past successes are attributed only to skill no luck. However, past failures are due to bad luck and not to a lack of skill. Overconfidence often leads to investors overestimating their ability to repeat their past successes and conveniently ignoring their past mistakes.

With the benefit of hindsight, both these biases often have a large impact on the foolish certainty we think we have of the future. This article is not about behavioural finance as such but rather about showing how emotions may lead to irrational and, consequently, sub-optimal decision-making, with possible destruction of value using current examples.

Over the past five years, the local stock market has delivered disappointing returns, barely beating inflation. It has been a painful period for equity investors, not only relative to the good returns we have seen in the past, but also relative to the returns local investors could have generated by investing offshore.

Finally and most importantly, the article serves as a reminder that an investment strategy is, or at least, should be, linked to goals whilst being cognisant of the danger historically of emotive decision-making resulting in destruction of value for investors. Graph 1 compares the South African stock market, relative to an offshore equivalent, over the past five years ending 31 March

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