Funds on Friday

A topical discussion on developments in the industry, often incorporating comments from leading fund managers or asset management houses.

FoF-03072020-Listed property are the foundations solid enough to endure the COVID storm

The listed property sector has been the hardest hit in the market sell-off brought about by the COVID-19 pandemic. This article examines the short-term steps taken by the sector to see through the storm, as well as some of the current fundamentals and post-COVID outlook for the sector.

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How safe are your deposits at a bank

In the article the author, discuss how secure the SA banking system is and highlight the current positioning of SA banks in light of the COVID-19 pandemic. He also covers the pillars of a bank’s financial credit strength guide, which depositors can use to assess the safety of their deposits in a bank.

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The steepest curve in the world

Yield curves primarily steepen for one of two reasons. Either economic growth prospects look so good that investors switch from long duration bonds (pushing their yields up) into other assets that perform better in periods of growth. Or the short end falls as policymakers lower the base interest rate in the face of growth concerns. In this article, the author unpacks on the reasons for the steepness of South Africa’s yield curve and makes reference of the SA government’s alarming budget deficit.

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There’s more to the global stock indices than meets the eye

In the article the author, unpacks how significantly the S&P 500 benchmark has changed over the last few decades, as well as how it differs from the MSCI Emerging Market index. Through the article he also makes a case for the value in allocating to an investment manager that has the freedom to discriminate between stocks, sectors and countries, instead of just buying the S&P 500 index.

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The impact of earnings recessions – where to now

In the article the author, explores the impact of earnings “recessions” as a way of understanding market downside risk, historic time to recovery and the rating from which the market was able to recover.

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It’s time to get serious about diversifying your assets

In this article the author, makes a case for investing offshore, given the weak returns experienced, as well as the continuing weakening of the rand relative to other currencies for SA investors. While acknowledging that these are factors as a result of corruption, de-industrialisation, the inability to attract capital, emigration and balance of payments and fiscal challenges. In addition, he illustrates that the performance of SA equities vs MSCI ALL World Country Index fails in comparison and that it underperforms inflation.

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GEM - Doom gloom then bloom

Global developed equity markets have gained more traction during this Coronavirus pandemic as developed market central banks stepped in with unprecedented stimuli. In the article, Feroz Basa makes a case for global emerging markets - highlighting some of the key economic and valuation considerations for investors.

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Credit - more risk than is obvious to the naked eye

In 2009, I became the lead manager on a fixed income mandate and have continued to pursue my passion of managing client capital in what I have always perceived as the less-than-captivating area of investments – fixed income. These days, my window to the market is the income fund which I’m responsible for.

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Hedge Funds - an old enemy or new ally

Within the investments industry, it is a tale as old as time: hedge funds are dangerous. Nervousness around the asset class stems all the way from iconic hedge fund blow-ups in the distant past to misconceptions on the relative riskiness and concerns around regulatory oversight.

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The importance of growing wealth

Countries, much like listed companies, aim to grow through time. However, instead of assessing their margin expansion or sales growth, a country’s growth is often measured in gross domestic product (GDP). GDP represents the total value of all goods and services produced in a country over a one-year period. China has been one of the fastest-growing countries in the world, with their latest annual GDP print at 6.1% for 2019. What we don’t know, given that GDP is effectively a revenue number, is whether it has translated into creating wealth.

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Responsible investing during the COVID-19 crisis: seeking opportunity through an ESG lens

At the time of writing, the COVID-19 crisis is wreaking havoc across global markets, interrupting global supply chains, drying up demand and of course taking a massive personal toll on affected families. Given the scale of the devastation, some investors might ask, why worry about responsible investing or environmental, social and governance (ESG) issues at this stage? Surely it makes sense to just focus on the “important” investment numbers and rather leave the soft ESG stuff until after the crisis?

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Fixed income: investing in the new age

Investing in fixed income markets has been extremely challenging ever since the GFC which has unveiled profound structural changes to the fixed income investment landscape. In this article, the authors delve into these structural changes to the macro-economic landscape in the areas of valuation of fixed income markets, credit, volatility management and liquidity management and how it has permanently altered the environment for fixed income investing.

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Are you investing enough offshore?

Are you investing enough offshore? The answer to this question has many experts divided. In this article, the author delves into the process of identifying the level of global exposure that is appropriate for you in order to have a well-diversified portfolio.

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Is SA corporate credit too expensive?

There is currently a debate over whether SA floating-rate corporate credit (in the form of floating-rate notes or FRNs) has become too expensive, particularly for higher-quality issuers. This would mean that the yield these assets now offer is insufficient for the risk involved. In this article, the author sheds light on the topic

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The comeback is better than the setback…

As human beings we suffer from a number of biases, which can lead to irrational behaviour, especially during stressful situations.

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Who has borrowed my money?

The evolution of credit analysis through the years is linked to the increasing complexity of the underlying debt instruments and the more stringent banking regulation introduced after the global financial crisis. In this article, the author delves into the issuance of Bank Additional Tier 1 (AT1) instruments while looking at the merits and risks of being included in the asset allocation of multi-asset funds.

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Blackstone – Capitalising on a changing industry landscape

A rapidly changing industry landscape has led to growing demand for passive and alternative investment products, at the expense of traditional actively-managed funds and resulting in a fund-raising “super cycle” for large, diversified firms such as Blackstone.

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The Samaritan in your exhaust

Sometimes we know nothing about everyday things. Particularly when they are hidden from view. But when their mechanics are decoded for us, it imparts a new appreciation for them and arms you with information that’ll make you more interesting in conversation.

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Can we (really) time the market? (Part 3 of 3)

The first two parts of this article outlined the additional risks investors face as they approach retirement. In this finale of the three-part article, Darren Burns, Head: Investment Solutions at Glacier by Sanlam, gives insight into longevity risk, life cycle risk, sequence risk, hedge funds and smooth bonus funds.

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Can we (really) time the market? (Part 2 of 3)

Part 1 of this article outlined how significant timing can be to the overall value of your nest egg. It also illustrated how important market performance is the closer you are to retirement. But do these risks still exist after you’ve retired?

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Can we (really) time the market? (Part 1 of 3)

“Can we (really) time the market?” In this three-part series of articles, Darren Burns, Head: Investment Solutions at Glacier by Sanlam, gives insight into the notion of ‘timing the market’ and the impacts thereof.

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A turbulent year with handsome gains - a recap of 2019

“2019 was a turbulent yet rewarding year for equity and local bond investors alike.” In this article, Patrick Mathabeni, Research & Investment Analyst at Glacier by Sanlam, gives a recap of the events that drove the market in 2019 with a particular focus on the local and global macro environment.

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Central banks are equal, but some are more equal than others

In this article, the author explores the role of the central banks- what they do and why they do what they do. The article also touches briefly on what determines the influence of these Banks.

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Tortoises and Hares are investors too

“Rule No. 1, Never lose money. Rule No. 2, Never forget rule No. 1.” – Warren Buffet. In this article, the author delves into the concept of authentic asset allocation with the notion that portfolio managers should actively protect investors from the risk (equities) and move into a holding pattern (cash) until such time as value returns to the market.

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The negative side of negative rates

Global monetary policy has moved through various regimes over the past decade: from traditional interest rate cuts to unconventional measures, such as quantitative easing (QE), forward guidance, and yield curve control. In many economies, policy rates have reached the lower bound, leading to zero interest rate policy and negative interest rate policy. In this article, the author delves into this concept and looks at the negative effects of negative interest rates.

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Is now the time to reconsider hedge funds?

During the past year, many investor discussions and articles have focused on whether clients should look to move more of their wealth offshore to hedge their exposure to South Africa in the light of the country’s unprecedented economic and political challenges. In this article, the author delves into the role that local hedge funds can play in providing investors with a much-needed hedge against South African’s challenging investment environment.

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Co-working: examining the WeWork model

The flexible office or co-working space model has experienced exponential growth in recent years driven by the need for effortless, low-cost workspace. In this article, the author examines the WeWork model, which is now the largest flexible office space company in the world.

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Analysing the Success Rate of Fundamental Stock Pickers in SA

The debate between the proponents of active vs passive equity management intensified over the last number of years. In this article, the author uses empirical data (based on history) to discuss active management by examining three arguments (termed as hypotheses) that are at the centre of active management strategies, particularly fundamental stock pickers.

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Why asset managers should be thinking and talking about culture

We believe that investment teams should strongly agree on which dragon to slay and then strongly disagree on the best path of attack. This will result in an isolated and surrounded dragon. Similarly, investment team members must subscribe to the same investment philosophy but have the freedom to look at investment opportunities from different perspectives.

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US real estate: a strong foundation

The US REIT industry, represented by NAREIT, is a beacon for other countries looking to benefit from an investment regime that provides investors with attractive long-term sustainable returns coupled with diversification benefits. In this article, the author expands on the benefits of having a long-term allocation of 10-20% to global REIT’s in a well-diversified portfolio.

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Conversations with clients

In this article, the author expands on five topical market issues. The aim is to provide insights to the very different investment landscape we’re currently faced with. The talking points are as follows; Chin up, the rand has been OK. A new support for precious metals. You have one million rand, invest it in US cash or SA bonds? Recession around the corner? Maybe not. The real victims of the trade war.

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Waiting for the lights to change

Equities have, over time, been the asset class of choice and the asset class that has most effectively preserved the wealth of investors against inflation. The past 3 years has, however, favoured bonds and cash much more than equities. In this article, the author reflects on how financial markets will evolve over the near to medium term when a move back into equities will be most appropriate.

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How do you measure “cheap”?

When evaluating a company’s attractiveness as an investment, many investors focus on a company’s price-to-earnings ratio (P/E). Companies with lower P/E ratios will generally be considered cheaper than those with higher multiples. In this article, the author explains how to determine which companies are attractive investments through finding those which are trading below their intrinsic value.

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How to win the RWC2019 office pool

Who’s going to win the Rugby World Cup 2019? Ask any supporter for their opinion and they will tell you exactly what they think, with a degree of certainty backed by a number of reasons to justify their forecast. In this article, the author uses the analogy of sport betting and relates it to the stock market with the notion of whether the local equity market will continue to underperform the bond market.

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Revisiting questions on fixed income funds

At the recent Glacier Invest Roadshow, a number of important questions relating to fixed income funds were raised, that we didn’t have time to address. In this article, Erik Nel, responds and delves into the implications for investors within the current unsettling global financial market conditions.

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Market (un)certainty in a changing world

In this article, the author discusses how developments, such as lenders paying borrowers for lending them money, or borrowers being paid to borrow and Italy and Austria issuing very long duration bonds, may imply that investors seem desperate for yield, but more importantly they indicate that investors may be very complacent toward risk.

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Can emerging markets lead the way to global recovery?

This article discusses how the global economic slowdown could end without a recession and how emerging market economies could lead the recovery.

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FoF_26042018_GLC_-Managing-retirement-income-if-your-client-has-not-saved-enough

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Barriers to supply and platform as a competitive moat

This article will briefly discuss demand drivers and then focus more intently on barriers to supply before articulating the practicalities of what we refer to as ‘platform advantage,’ by focusing on data centres and towers.

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South Africa and the Terrible, Horrible, No-Good, Very Bad Idea

We recently witnessed market commentators, politicians, strategists, and even investors commenting on the unavoidable realities facing South Africa after years of living beyond its means.

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Is going global for balanced funds gainful?

The 2018 Budget Speech, which included the easing of the Regulation 28 foreign exposure constraint from 25% to 30%. Over the same period, the ZAR depreciated by 19%, which created an ideal environment to increase foreign exposure in a portfolio.

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Listed property: stress-tested and bearing up in a very tough market

After a strong start to 2019 when listed property soared 9.2% in January, hopes for a good recovery for the sector have since been dampened.

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Window dressing on the JSE

Are month-end closing prices manipulated higher to flatter fund performance? A phenomenon that has long been debated within the equity market space.

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Central banks are under threat across the globe – why it matters for investors

Reserve Banks in the US and SA have recently taken a dovish stance on interest rates. During the course of 2019 this has become increasingly prevalent as central banks globally are now tending towards quantitative easing.

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Bonds: Impervious to the ANC’s Game of Thrones

President Ramaphosa was welcomed by the markets in a period that was referred to as Ramaphoria. A few months later- this euphoria is still to be observed by the markets.

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Three observations that are worth making in the domestic listed equity space

In the South African domestic listed equities investible universe, investors are presented with about five broad equity indices that they can choose as benchmarks.

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Not all earnings are created equal

When investing in a company, it’s important to remember that you aren’t only buying a stock – you’re ultimately buying that company’s future earnings stream. In turn, how much of that company’s reported earnings (Net Income) is converted to cash, determines what can be reinvested to fuel growth.

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THE BIG PICTURE : The JSE – Horribilis but hope there is!

For investors, professional money managers and company executives, the past five years have played out as one of the most grueling and painful periods since the 1970s.

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Think outside the Box

It is in our nature to compartmentalise. We group our understanding of things into proverbial boxes, which aids us in forming views and making decisions.

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Can markets be timed (or, the cost of FOMO?)

The South African investment market has matured to the point where it is now generally accepted that, when it comes to stock picking, active asset managers struggle to consistently keep up with the index.

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SOEs: State of Emergency or Alpha Opportunity?

Load shedding, State capture, high debt, corruption, incompetence – just some of the descriptions that spring to mind when one hears the phrase State-Owned Enterprise (SOE).

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How to make more money offshore

Humans are genetically and biologically programmed to identify risks – it’s part of the reason we’ve been such a successful species. But our skill of scouring for danger can be problematic.

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Inverted US yield curves and recessions

The market’s most reliable leading indicator, the inverted yield curve, is telling us to prepare for a US recession. Inversion essentially means that the yield on short-term (six months to two years) US government notes/ bills is higher than the yield on long-term (10-year) US government notes.

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Outlook on SA’s property sector

Last year investors witnessed a poor performance in most asset classes both locally and abroad with the property sector standing out significantly. However, cumulatively, the property sector has done significantly better than all other sectors in the last 15 years.

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Consistently inconsistent: Big Funds

The 5 largest funds in the General Equity sector hold 37% of the assets in the category. Emotion-based marketing convinces the man in the street that, based on size, these funds are the “safe” option and therefore, almost by default, investors continue to invest in them.

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South African investors feeling jaded

Feeling slightly jaded or disillusioned by your investment portfolio? You’re not alone. For the best part of five years, investors could be excused for thinking that they’ve been trapped in a Groundhog Day of horrible market conditions.

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Technology and Behavioural Finance: Using technology to bridge the gap between finance and psychology

When advisers sit with their clients to create a financial plan or carry out an annual review, they tend to focus on the classic risks such as market, manager, liquidity, longevity and sequencing risks.

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Tencent has been a multiple ten-bagger over the last ten years, but where to from here?

Tencent has built a unique digital consumer ecosystem with over one billion users that is unrivalled in the Chinese consumer market. In this article, the author delves into the key to Tencent’s success which has been the migration of its PC user base to a mobile platform as well as the company’s strong presence in the online gaming and social network services space.

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The big opportunity in small stocks

A diversified portfolio of smaller company shares typically outperforms a portfolio of larger company shares over the long term. We believe that much of this outperformance comes from pricing anomalies resulting from less widespread scrutiny of smaller companies, often together with superior earnings growth.

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Investor accountability – where does the buck stop?

Gone are the days of relying on only a few in the know to make investment decisions on behalf of the many. This is increasingly true since the rise of the millennial investor, who wants to know that their investment counts and makes a difference.

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Looking beyond the budget shows potential for upside

On Wednesday the 20th February 2019, South Africa witnessed the Minister of Finance, Tito Mboweni, deliver 2019’s Budget Speech which planted a seed for renewal and growth in the country. In this article, the author examines prospective outcomes of the Budget Speech, what these signal about the road ahead and its implications on domestic asset prices.

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Are SA returns poised for a turnaround?

Investors have been experiencing lower returns across a broad range of South African and global assets over most of the past five years. This, in turn, is prompting changes to asset allocation positions and investments that at Prudential we don’t believe are in their best long-term interests.

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Equities no longer the only premium asset class (Part 1)

Why would investors take inflation plus 5% return on a 30-year bond, or inflation plus 10% on an equity portfolio, with the non-negligible risk of facing significant drawdowns over a 1-year horizon, if investors can accrue inflation plus 3% via simple 1-year deposits with top five banks with certainty?

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Platinum group metals: Dissecting the divergence

Over the last few years there has been a notable divergence in the price performance of the three main platinum group metals (PGMs), namely platinum, palladium and rhodium

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Are we seeing a sustained recovery in asset prices or a temporary bear-market rally?

Forecasts, especially with regard to the macro-economic and market environment, remain just that – forecasts, and not what transpires in reality.

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Trends shaping the global asset management industry

Global asset managers have had to adapt to changes brought by technology, innovation, passive products and falling fees amongst other trends. In this article, the author explores the trends in the global asset management industry and how investors and asset managers have behaved during various trends.

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Sourcing alternative returns in uncertain markets

The introduction of Section 12J investments has provided local investors with a very unique opportunity to invest in tax-deductible investment vehicles.

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Why listed property remains attractive in volatile markets

2018 was an inordinately difficult year for listed property, with a record sell-off at the start of the year triggered by various allegations made by short sellers levelled against the Resilient group of companies.

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