25 May 2023
The art of investing
Crafting the finest investment solutions is like fashioning a beautiful piece of art. At Glacier, in partnership with our investment management companies, we are proud of the role that we play in this artistry.
Setting the scene
Kevin Lings (STANLIB), Piet Croucamp (North-West University) and Rocco Carr (Glacier by Sanlam) set the scene for the day’s presentations and panel discussion by exploring the outlook on the economy and political landscape, locally and globally. Two notable themes dominating their conversation were US inflation and the consequent interest rate hikes, and the energy crisis in South Africa.
The terrible twins – inflation and the interest rate hike
In mid-2022, US inflation reached 9.1%, way above the target of 2%. Contributing to this increase were food and energy supply challenges brought on, in part, by the Russia-Ukraine war. Inflation increases in the US and elsewhere took on a life of its own in the second half of 2022 and into 2023. Initially, the Fed predicted that inflation would be ‘transitory’, but once it was established that this was going to be a longer-term challenge, they were well behind with interest rates. Several hikes later and the current interest rate in the US is 5.25%, above the inflation rate which currently is 4.9%.
Important to note is that inflation must decrease before rate-cuts can happen in the US and which would allow other central banks around the world to follow suit. US rates are likely to remain elevated for the remainder of 2023, and this will likely be reflected in other markets.
Interest rate relief is unlikely until next year. The data to watch is shelter (housing) inflation which would flag an overall decrease. This refers to the cost of housing, and in particular, housing rental. In the US, shelter inflation is the largest part of the inflation basket (more than 30% of the index). With shelter inflation currently at 8.1% there is a way to go to for it to decrease to the 2% target. The lower shelter inflation becomes, the closer we can get to rate cuts and the closer we can get to the next economic upswing.
While shelter inflation is important in the US, locally, food and energy costs dominate the inflation we experience in South Africa.
The crisis of energy
Loadshedding is unlikely to abate anytime in the short or medium term. What is important is that largescale investment (around R1 billion) is currently being made into acquiring solar panels for private sector and domestic use. Because of partnerships in the private sector, loadshedding could be scaled back significantly by mid-2024.
Loadshedding currently costs SA around R800 million per day, which equates to two percentage points in GDP growth per annum. While solar power can alleviate the pressure on the Eskom grid, a largescale, long-term solution has to be developed to eliminate loadshedding completely.
Offshore investing and estate planning
Neal Sinclair (Glacier by Sanlam) explored the vehicles for offshore investing against the backdrop of a complex SA market, and with a special focus on estate planning, particularly in terms of tax efficiency.
Neal Sinclear - Glacier by Sanlam.pdf
Two decisions that clients make regarding going global:
- Why should I invest offshore?
- How do I invest offshore correctly?
Most discretionary offshore investors probably invest via a feeder fund, and this is being done against a backdrop of the current global economy, therefore hedging against rand depreciation is important.
The local investable universe
In answer to investors’ first question, there are limited companies that can be accessed in the local market. The large global brands form a massive opportunity set offshore and yet clients seem to have all of their eggs in one local investing basket, and most of it is tied to the South African economy.
As SA investors, we tend to fixate on the rand/US$ exchange rate, which tends to influence the decision to invest offshore. The rand should be a factor in this decision, but other factors are also important. When this decision is made, estate planning must be taken into account.
What should we consider when investing offshore around estate planning?
- There are different jurisdictions around the world governed by different sets of legislation. Knowledge of probate therefore is essential.
- In common law, the deceased’s estate is wound up through a will. However, on the other side of this is succession. In some countries, in terms of civil law, a deceased’s estate goes to their children automatically, and bypasses the spouse. Therefore, civil law could put financial and estate planning at risk.
- An offshore will may not necessarily be recognised by the jurisdiction in which the will was drafted.
What are the simplest, most tax-efficient ways to invest offshore?
It’s really simple – ensure that solutions are wrapped. The administration and estate planning benefits of this cannot be over-emphasised – especially at death. And this is where the Glacier International Global Life Plan proves its mettle.
For tax efficiency, it makes sense to place a basket of offshore funds in an endowment or a sinking fund. Endowments are suited to affluent individuals while sinking funds work for trusts and entities. Most offshore funds are ‘roll-up’ funds which do not declare interest and dividends, making them more tax-efficient as the tax triggered would be CGT at 12%. On the local side, feeder funds declare interest and dividends, which could trigger a tax event at a marginal income rate of 30%.
Wrappers avert complexities at multiple levels for investors, including the amount of tax that is triggered at death, which is lower in SA than many other countries.
The Glacier Offshore Investment Plan is ideal for investors seeking easy, low-administration access to global markets. The Glacier Offshore Investment Plan also has a recurring investment option, catering to monthly investments at a minimum of R5000.
Glacier does the SARS heavy lifting for your client
All tax administration in Glacier’s offshore wrappers is taken care of by Glacier on behalf of the client. Also, because of the structure of the wrappers, the client may need to pay no more 12% CGT as opposed to marginal income tax of 30% or more.
Panel Discussion 1
A discussion between Deon Gouws (Credo) and James Bullock (Lindsell Train) and moderated by Eugene Braak (Boutique Investment Partners) on where to identify opportunities for quality and value in the current economy – Microsoft and the London Stock Exchange were identified as favourites.
Panel Discussion 2
James Murray (Old Mutual Investment Group) and Feroz Basa (Sanlam Investments) then participated in a panel moderated by Pierre De Klerk, CFA (BIP) on the advantages of either high levels of diversification or concentrated portfolios. Investment styles are not as critical – a focus on tranches of the market & gaining access to the global economy are, but make sure you identify where returns could likely come from (emerging vs developed markets). Concentrated portfolios can give you better insight to the companies in a portfolio.
Panel Discussion 3
Rafiq Taylor (Glacier Invest – DFM) facilitated a panel together with Cor Booysen (Fairtree) and Peter Duminy (Sanlam Private Wealth) who explored whether a bespoke or a unit trust is the way to go. Ultimately growing wealth is the objective, and defining the benchmarks is key, together with outperforming them.
Retirement is all about income stream management
Neal Sinclair (Glacier by Sanlam) and Rainier van der Nest (Glacier by Sanlam) took a closer look at income stream management in retirement and the importance of financial advice and varied solutions to meet clients’ objectives.
Rainier van der Nest - Glacier by Sanlam.pdf
Panel Discussion 4
Moderated by Preanka Naidoo (Glacier Invest), Hamilton van Breda (M&G Investments) and Christo Lineveldt (Coronation Fund Managers) explored whether a CPI+4% target is realistic for a low-equity fund. Exposure to growth is essential, particularly when inflation is challenging and the answer is probably ‘yes’, over the medium term.
Panel Discussion 5
Jonathan Myerson (Visio Capital Management) and Bronwyn Blood (Granate Asset Management), together with moderator Shawn Phillips (Glacier Invest), discuss whether it helps to be unconstrained in an income portfolio or if it just increases volatility.
Panel Discussion 6
The panels for Day 1 concluded with one moderated by Rafiq Taylor (Glacier Invest) together with Louis Niemand (Ninety One), Ralph Thomas (Sanlam Investments) and Sean Munsie (Allan Gray) looking at whether a house view helps, or if funds should follow their own styles. Ninety One has a little more autonomy through their franchise model, in terms of views with respect to investment process and philosophy per portfolio manager. Allan Gray has a multiple portfolio manager approach with firm risk limits, so clients get the weighted average of performance of the underlying. Sanlam Investments have a co-portfolio manager approach and a consensus decision-making approach.
Emma Sadleir (The Digital Law Company) gave us a fascinating overview of the legal, disciplinary and reputational risks of social media. Here are some key insights from her presentation:
- People will Google you – clients, colleagues, people you have just met.
- Social media includes any digital platform where you consume and/or contribute content e.g., WhatsApp groups, Facebook and Instagram.
- Looking after your personal brand involves being careful about what you post about yourself and what others post about you.
- Digital content is dangerous, and nothing is truly deleted.
- Warren Buffet’s quote: It takes 20 minutes to build a reputation and 5 minutes to ruin it. On the internet it takes 5 seconds to ruin your reputation.
- Freedom of speech and expression is not an absolute human right. It is balanced against the rights of others to privacy and dignity.
- Online content is treated by the law, as any other published content.
- You can hurt somebody’s reputation or that of an organisation, provided that what you say is true and for public benefit.
- In terms of their civil capacity, children as young as seven can get sued – for bullying, cyberbullying, defamation etc.
- Digital natives are those of us who have never lived our life without an online one.
- Confidentiality must be taught.
- Chain of publication must be understood to avert the pitfalls of posting online.
- Forwarding content, even if you are not the originator of that content, renders you responsible for that content.
- If you have the power to stop something from being published and you don’t, you are legally responsible for it.If you are the administrator of a WhatsApp group, you assume the responsibility to “delete for everyone” content that is posted by others, especially if it contains hate speech, misogyny, sexual violence, racist content etc. You have a window of two days to do this.
- Participation in a WhatsApp group can extend to 512 users.
- If you like something, you are in the chain of publication. Liking something means you associate yourself with it. If you are tagged in something, and you don’t un-tag yourself, the same rule applies.
- If you wouldn’t place your content on a real-life billboard, don’t post it on social media.
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