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Why a near perfect election outcome?

The ANC won 57.5% (2014 – 62.2%) but up from 54% in the 2016 municipal election. The DA declined to 20.8% (2014 – 22.2) and the EFF increased to 10.8% (2014 – 6.4%).

With little viable alternative to the ANC, we are reliant on new leadership in the ANC to make meaningful changes to turn the country around. The 57.5% vote has shown a recovery from the dark days of Zuma in 2016 (54%), which is being attributed to the new leadership, Ramaphosa. This should give him the much-needed support in the party to start making meaningful changes and clean out corruption.

A vote of +60% could have led to the ANC being arrogant and complacent. A low majority of less than 55% would have pointed to a lack of leadership and a strong case for Ramaphosa’s detractors to oust him. At 57.5%, there is improvement from 2016, albeit not high enough to ignore that the ANC majority could still be at risk.

The DA remained the official opposition at a reasonable level and the EFF, although improving significantly, remains a relative minnow.

Key highlights:

A low voter turnout down to 66% from 73% in 2014. This number excludes the 10m eligible voters that did not register, which means around 20m adults did not vote.  Although a lower turnout comes with a maturing democracy, analysis suggests that the electorate is disenchanted and, in some quarters, filled with hopelessness, which was accompanied by 1.3% spoiled votes. Overall, we see this as having had a far more negative effect on the ANC than other parties.

A low youth turnout. Of the 9m eligible youth (below 30-yrs old), only 3m voted. This is partly due to only 6m being registered and a likely disapproval of political choice. This demographic could change the vote significantly in five years’ time.

6.5% of ANC voters did not vote for the party at provincial level. This shows more support for Ramaphosa at the national level and less for the party at the provinces – a key statistic and indicator of voters’ potential faith in him.

A weak ANC showing in Gauteng (the engine of the economy). ANC 50.2%, DA 27.5% and EFF 14.7%. Although the ANC is up from 44% in 2016, which helps Ramaphosa, it points to a significant vulnerability of the ANC in the biggest district of the country. This is a major  concern for the ANC.

The EFF increased its vote 500% in KwaZulu-Natal to 9.7% showing strategically, that it can get traction and should not be ignored as just a minor party.

What happens next ?

Ramaphosa needs to solidify himself as the unequivocal leader of the party. Friction in the leadership is out in the public domain and that can mean that a final show-down is imminent within the top six.

Ramaphosa has been politically astute leading up to the election, but now he needs to be bold and implement meaningful change.

A new cabinet should be announced by 27 May, which is likely to be significantly reduced to 40 from 72 members and may include many new faces.

The removal of corrupt ANC leaders and government members will need to increase and be followed by the prosecution of some high-profile officials.

What the election outcome means for the investment market?

The market was hoping for this result, with a +50% probability prediction. This is being reflected in a firmer Rand/Dollar and stronger government bonds.

“Ramaphoria” is likely to return in the short term, which would support SA equities, a firmer Rand and Bonds.

However, meaningful political and government structural change must take place in SA over the next six months, or investment markets will lose faith that economic growth will be restored.

There is optimism for a positive outcome

Barring any offshore calamities, the Rand/Dollar should firm to the lower end of our forecast range of 13.5 to 14.5 this year.

SA Inc. (direct SA-related shares, such as Banks) should rise. Overall, this segment of our market (around 50% of the JSE All Share Index) is inexpensive and offers significant upside with a positive political outcome.

Despite SA dealing with its own challenges, international investment markets remain vulnerable to US / China trade talks, slowing global growth, and relatively high valuations. Selective areas offshore need to be considered carefully.

The post Election relief – Now what? appeared first on Investonline.

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Old Mutual Wealth (Tiaan Herselman) – The electronic age of financial planning

There are four key variables in developing a financial plan: Available assets, your desired lifestyle, the investment return required and your expected lifespan.
It’s important to distinguish between non-liquid and liquid investments. An example of a non-liquid asset is a retirement fund, whereas a liquid asset is a unit trust or money market. This can make a big difference leading up to retirement and when you are in retirement with regards to taxation, access of funds and utilisation.

Findings:
  • Every financial plan is unique. Make sure you know what the triggers are.
  • Getting the balance right between liquid and non-liquid investments is very important, while you save for retirement and when you are retired.
  • Don’t destroy wealth by chasing investment returns – stick to your investment strategy
  • Make sure you constantly review and update your financial plan. And understand how any potential changes could affect you.
    In this electronic age of financial planning, partnering with a qualified financial planner has never been more important.
Investonline’s role:

At Investonline, one of our Client Portfolio Managers can build a digital financial plan with you to show you the potential outcomes of your investment decisions. This is vitally important to ensure that your goals are met and that your investments are structured optimally in terms of liquidity, estate planning and tax efficiency.

Investec (John Biccard)

The Investec Value Fund has outperformed the general equity unit trust sector by a massive 3.6% p.a. since inception (2000).
The value style of investing has underperformed growth for more than 10 years. This must be nearing an end.

The fund’s current positioning:

Platinum shares 33%, SA mid / small-cap shares 34%, Offshore 29%.

Top 5 mid / small-cap holdings:

Mediclinc, Nampak, Brait, Arcelor Mittal, Tongaat.

The Fund is positioned for:

Higher Platinum prices as it catches up to Palladium, the narrowing of the valuation gap between SA midcap and large-cap shares, weaker global markets (especially FAANG shares).
The fund is estimated to grow 20% p.a. over the next three years. The fund is suitable for investors with a high-risk tolerance and long-term investment horizon.

Allan Gray (Duncan Artus)

Although the JSE All Share Index is on a P/E of 16.4, the median company is on a P/E of 12.4, which is at an average level over the last 20 years. Hence, not expensive.
The Rand is fairly priced on a long-term inflation adjusted basis to the US dollar.
The US equity market is at a all time high relative to other developed markets, mostly due to the FAANG stocks (Facebook, Amazon, Apple, Netflix, Google).
Listed property has de-rated significantly and is offering some attractive opportunities
The Allan Gray Balanced fund is 67% invested in equities and 32% outside of SA.
The biggest offshore investment is in emerging markets.
Top 5 local holdings: Naspers, BAT, Sasol, Glencore, Remgro
Top 5 offshore holdings: NetEase, AbbVie, Taiwan Semiconductor, Celgene, Naspers
They estimate equities to grow by 11% p.a. for the next three years.

Investonline (Nick Brummer)

Meet the Investonline Team: 6 Client Portfolio Managers and 1 Client Service manager
Who does Investonline partner with? Allan Gray and Old Mutual Wealth provide the administrative platform. Various premium branded fund managers are investment managers.
Our Service Offering: Financial Planning, Investment Management and Advice, Retirement Planning, Estate Planning, Tax Advice, Offshore Investing.
Most Common Investor Mistakes: Not having a financial planner, Not matching your goals to your investment strategy, Impatience – Not understanding or trusting your investment strategy, low fees at the expense of performance.
Key considerations when selecting an Investment Advisor: Qualifications and experience of the advice team, are you being serviced by an individual or a team, Independence of the advice, Investment track record, Fee structure.

How Investonline Adds Value: 1) Financial planning process
  • Establish goals and aspirations
  • Modelling your financial plan with different scenarios
  • Recommend the efficient structure in terms of tax, estate planning, liquidity and cost effectiveness.
2) Investment Strategy
  • +25 of investment experience
  • Proven track record
  • Personal investment target for each client
  • Review clients targets on a regular basis
  • Regular meetings with leading fund managers and experts

The post Investonline annual investment seminar appeared first on Investonline.

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Investment outperformance always occurs in cycles. Simply put, some underperformance precedes outperformance. The important issue is that, over time, the outperformance must outweigh the underperformance.

The cycle of underperformance followed by outperformance is due to investors not being able to predict the future accurately, which leads to an over and under estimation of value resulting in an opportunity. In other words, to do better than the market, you need to find something that the market does not yet know about. This “know-how” comes from research in finding an investment that is underperforming its true potential, before that true potential is discovered leading to its real value being realised and outperforming. This can require some waiting and patience.

An example to illustrate this is, Orbis has had some disappointing performance over the last year as it has underperformed the market by 12%. However, over the last 30 years, the Fund has – on average – outperformed its benchmark (World Equity Index) by a massive 4% per annum. This equates to your investment being worth three times more than if it was invested in the benchmark. Then again, these returns have not been in a straight line. There have been eight previous periods where the fund has underperformed its benchmark by more than 10%. Interesting to note, is that on each of these occasions the Fund has recovered in the following year.

Orbis’ philosophy of buying cheap value stocks instead of exciting, fast-growing companies has proven to be a winning strategy. The risk with exciting companies is that often the growth prospects are seen to be infinite resulting in them being overvalued and eventually underperforming.

Alternatively, value companies usually have growth prospects that are underappreciated or are going through temporary difficulties. It can take some time for the market to realise these better prospects, leading to an initial underperformance, which precedes the outperformance.
Over the last few years, these “exciting” expensive stocks have become more expensive making the investment environment difficult for a value investor, such as Orbis. This investment approach may be frustrating as the performance of the Orbis Equity Fund suffers, but the silver lining is that some of the value stocks are even cheaper and are being further added to. Currently, stocks in the Fund are trading at above average discounts to their intrinsic values, which should support good future outperformance. Simply put, some patience is required.

The post Patience rewards with outperforming investments appeared first on Investonline.

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With continued load shedding and concerns over Eskom’s survival, plus a continuous negative media stream, which is entirely appropriate given the prevailing circumstances, it’s difficult to be positive in or about South Africa. However, with the JSE up 7% this year, there are many positives that investors need to acknowledge, while being aware of the risks. We highlight these positives and risks in our second quarter market outlook.

Equity markets rebound

Global equity markets bounced up in the first quarter of 2019 with the JSE All Share Index up 7%, having declined 11% in 2018. The upward trajectory was driven by US markets as the outlook for further interest rate increases declined.

Global market sensitivity to interest rate movements continue due to the overall massive debt levels across the world. Rising interest rates are generally bad for equity markets as they slow down economic growth and enhance interest-bearing investments, such as cash and bonds.

Issues currently driving the investment markets: The positives

Low interest rates – SA inflation is expected to average 4.7% in 2019 per the Reserve Bank. This would mean no further interest rate increases this year and the market is starting to predict the next move will be a cut. This is positive for economic growth and equity markets.

Closing in on corrupt ANC officials – The noose is tightening on some key ANC officials and this should result in some resignations/dismissals, which the country eagerly awaits.

Markets are up – The JSE All Share Index bounced up from a technical low in December indicating that the market has bottomed. Although our view is that markets have turned for the better, short-term uncertainties are likely to still drive volatility throughout the year.

A positive election outcome – Elections in May should see the ANC increase its majority slightly, giving Ramaphosa more support to make more meaningful structural changes. We believe that Ramaphosa’s support from the NEC continues to increase and is currently above 60%.

No Moody’s downgrade – The rating agency has remained sympathetic and postponed their next review to November resulting in no negative change. This has given the government more time to show that they are making meaningful structural changes that will boost economic growth.

Historical low SA valuations – SA shares with local earnings are near historical lows on a price to book and price to earnings multiple basis. Any additional economic growth or positive sentiment will boost their values significantly. This comprises around 50% of the JSE. The other 50% is reliant on offshore earnings drivers.

The concerns

Eskom’s survival – The state of the utility is a major concern and will continue to be a drag on government funds for some years. There are still many unknowns in terms of the full extent of its ‘condition’, but we are confident that Pravin Gordhan will ensure its survival.

Low SA economic growth – The Reserve Bank has lowered its 2019 GDP forecast to 1.3% from 1.7%. This is up from a dismal 0.8% in 2018. But, the outlook for the next two years is still low at 1.8% and 2.0% respectively. This low growth outlook is being echoed by companies giving low earnings growth forecasts.

Politics and the Unions – this is always a precarious relationship. But the time has come for Government to put the interests of the country first and reject unrealistic Union demands. Union dissatisfaction will be one of the major hurdles the economy is likely to face in 2019 and could result in many disruptions. If handled appropriately, it will have positive long-term effects and will be viewed positively by the investment markets.

Slower global economic growth – US interest rates are pointing to a possible decline and Europe is unlikely to raise rates this year. Although the US economy appears healthy, there are concerns that growth is slowing, which is being fuelled by no further tax cut benefits and the trade war with China. We do not see a global or US economic recession, but growth concerns do not support the high earnings base and current equity valuations.

US / China trade talks – the outcome of this protracted jostling is unknown, but this super-power interaction will hopefully enhance relationships. Both countries need each other, and we do not see a substantive, irrational conclusion that will materially disrupt economic growth.

The volatile Rand – The Rand is still driven mostly by emerging market flows, which as a sector, has had numerous political disruptions. The fundamental value of the Rand to the US Dollar is around 12, which we believe will only be realised if a host of significant and meaningful government changes are implemented. Until then, we believe the Rand is likely to remain range-bound between 13.50 and 14.50 to the US dollar.

Investonline Market Outlook

Our first market review for the year was titled “2019 – a year of reckoning” with the key theme being that most of the global and local bad news was priced into markets and that the long-term outlook for equities had improved. Thus far, this view has proved correct as the JSE is up 7% year to date, but this does not mean that it’s time to dive into the market.

A measured approach is still critical as risks (mentioned above) will keep the market uncertain leading to more short-term volatility. Sector selection remains important, such as local vs offshore, developed vs emerging economies, industrial vs financial vs industrial. These opportunities are positioned with different fund managers.

Although we believe the long-term outlook has turned positive, 2019 will still have some volatility, which one needs to ensure is accommodated in your investment strategy.

The post 2019 Second Quarter Market & Investment Outlook appeared first on Investonline.

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The magic retirement numbers “5, 15 and 75” will give you a basic “ball park” amount that is needed to retire at 65 years old, which then should generate enough income for the next 30 years. But to ensure a more accurate outcome, you also need to consider taxation, different investment products and the best-suited investment strategy for you. Plus, add in estate planning for peace of mind.

The magic retirement numbers:

15 – you should save 15% of your income from the age of 23 until retirement at 65.

75 – at retirement you will require 75% of your final salary as income.

5 – you will draw 5% of your savings per annum in retirement as your income.

Sounds simple but a lot can go wrong:

It is paramount to start saving as soon as possible, as catching up is far more difficult than one expects. Saving 15% of your income assumes that your income will increase by 2% above inflation every year and that you will invest these savings into a growth asset that will grow on average at 6% above inflation until retirement.

Drawing down 75% of your final salary assumes as a retiree you will have less ‘regular’ expenditure, such as school fees, lower transport and housing costs, and less debt to service.

Drawing 5% of your savings is dependent on your savings growing on average at 4% above inflation per annum. The average balanced fund over the last five years has grown at only 5.8% p.a. This can be caught up, but it will need a lot of trust and commitment when one sees one’s plan “faltering”.

In retirement, a very volatile portfolio can fluctuate your drawdowns and can put pressure on your regular spending habits.

It’s also important to consider the possibility of you outliving your 30-year retirement period. This may sound like a bonus and is becoming more likely with a far higher aging population, but financially, this is a risk.

Keeping up with inflation remains an ongoing concern. Your investments need to grow 4% above inflation per annum in order for your monthly drawings to increase at the same rate as inflation.

Stacking the numbers up (a basic example):

Monthly income after tax requirement at 65 years old: R30 000 (to increase with inflation)

This will require a monthly drawdown before tax of approximately R38 000, which at 75% means your final salary was around R51 000 per month.

Therefore, to draw this income at retirement you would need R9.2m of savings to invest that will need to grow at 4% above inflation for the next 30 years.

Other important issues to consider to ensure you have enough income at retirement:
  • Ensure you have an investment strategy that will provide the necessary inflation +4% and most importantly takes into account your risk tolerance. This requires a properly structured investment portfolio that should provide the best risk-adjusted returns to suit you.
  • Ensure you are invested in the most tax-effective product or combination of products, such as living annuities, endowments or discretionary investment portfolios. This could result in lower taxes and far more income over time.
  • Ensure your retirement savings plan is monitored and adjusted when necessary to ensure that you stay on course to retirement and thereafter. This is crucial.
  • Start saving sooner than later. It is always better to focus on how much should be saved as opposed to how much less to draw as income when retired.
  • Try and draw down less at the beginning of retirement. This will allow your initial capital to grow more, giving you a safety buffer for later years.
  • Consider the effectiveness of your estate planning. This can provide important peace of mind for your family or dependants.

We recommend you speak with one of our qualified financial planners to assist you with your retirement plan, which could make a significant difference to meeting your desired retirement goals.

Please click here to speak to one of our advisors.

The post How much do I need to retire? appeared first on Investonline.

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Investonline by Alco Brand - 2M ago

After a lean period of returns, many investors are questioning cash as a haven, which has led to a surge in interest in money market and income funds.

Over the last five years, average equity returns less cash returns are negative, which are well below the long-term average of +8%.

Excess returns from Equities vs Cash (Annualised 2001 to 2018)

It is fascinating to note, that after a five-year period of average negative returns (cash returns exceed equity returns – grey bar), the subsequent four-year average excess returns (red bar) are positive 85% of the time. Over the same period, in 50% of instances, the return has been higher than the long-term average of 8%.

Periods of underperformance and subsequent excess returns of equities vs cash returns

A Brighter Future

Currently, the All Share Index measured in US Dollars is at the same level as it was in April 2007, which is why Allan Gray is finding a lot more opportunities in SA equities than they have for some time.

It takes depressed valuations and negative sentiment to set the ground for strong excess returns from equities.

Investonline View

Investing can be difficult as it is often counter intuitive. When everything looks terrible and flawed, it’s often the time to buy (invest) and when everything looks fantastic, it’s often the time to sell (move to cash).

As we have stated previously, SA equities are offering value and therefore, more than ever before, selecting the right unit trust to invest in is crucial. We believe that there will be a large gap in fund performances over the next few years as fund manager options will vary between local opportunity and offshore stability.

As an alternative, an investment in our Prosperity Worldwide Flexible Fund of Funds should provide you with a low-risk, steady return as we take advantage of selected market opportunities. Over the last year, the Prosperity Fund has returned a steady 9.6%, and 8.5% per annum since its inception in September 2014.

The post Don’t Dash for Cash appeared first on Investonline.

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End of year Tax check list:

The current 2018/2019 tax year is ending on 28 February 2019. During this time, it is important to remember to make use of certain benefits for the year such as your annual deductions and exclusions:

  1. Contributions to a retirement annuity can be claimed as a tax deduction when filing your annual tax return. These contributions will be deducted against your annual taxable income for the year, and hence lower your taxable income and possibly result in a tax refund from SARS.
    • The deductible contribution is limited to the greater of 27.5% of your taxable income or remuneration for the tax year ending 28 February 2019. The maximum deduction that can be claimed in one year is R350,000.
    • Any contributions over and above the 27.5% or R350,000 maximum contribution can be utilised in future years (which is detailed in the section below)
  2. Top up your tax-free investment account into which you may invest up to R33,000 per tax year. All growth and interest in a tax-free investment is free of taxation when you withdraw the investment in the future
  3. Use your annual capital gains tax exclusion of R40,000. Consider making necessary investment switches or disposals, which will allow you to incur a capital gain of up to R40,000 without being liable for any tax on the gain.
Tax benefit when contributing towards retirement?

Allan Gray recently wrote an article summarising the five ways that investors can gain a tax benefit from contributing to their retirement funds.

  1. Reduce your tax bill in the current year

    Contributions to a retirement annuity can be claimed as a tax deduction when filing your annual tax return. These contributions will be deducted against your annual taxable income for the year, and hence lower your taxable income and possibly result in a tax refund from SARS.

  2. Reduce your tax bill in future years

    Contributing in excess of the maximum annual amount can benefit you in future years. This is because these excess contributions carry over to the following tax year and may reduce your taxable income during the next tax year, even if you don’t make any new contributions in that year. If you still make additional contributions in the next tax year, those contributions and the carry over amount from the previous tax year are added together and are subject to the 27.5% annual limit again, with any excess carrying over to the following tax year. Carry over can happen indefinitely throughout your lifetime.

  3. Reduce your tax bill when you withdraw or retire from a retirement fund

    If you choose to withdraw or take a lump sum when you retire or make a withdrawal from your retirement fund, this lump sum will be taxed as per the retirement tax tables. This tax table allows a R500,000 lump sum withdrawal before any tax is liable (assuming no previous withdrawals were made).
    Your tax-free lump sum can be increased by any contributions that you have made to the retirement fund, for which you have not yet claimed a tax deduction. These contributions are referred to as “excess contributions”.

  4. Get tax back from SARS on your living annuity income when you file your tax returns

    If you have “excess contributions” that you did not use as a lump sum withdrawal when you retired from your retirement funds, these excess contributions are still available to you when you receive your living annuity income and can reduce the taxable portion of your living annuity income.

  5. Reduce the tax bill on your death

    If you pass away and you still have not used your “excess contributions” in your retirement fund or living annuity, these contributions can be withdrawn by your beneficiaries without any tax being liable.

Summary

Don’t forget to top up your retirement funds to make use of your annual allowable tax deduction. You can also invest up to R33,000 into a tax-free investment per tax year.
Don’t feel that you need to limit your retirement contributions to your annual tax-deductible amount, as any excess contributions will still benefit you when you withdraw from your retirement fund, draw a living annuity income or the money passes to your beneficiaries upon your passing.

The post Tax tips for the year-end and retirement savings appeared first on Investonline.

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The Prosperity Worldwide Flexible Fund of Funds, which I co-manage, continues to produce solid steady performance despite the prevailing volatile markets. The fund is ranked 3rd out of 47 funds over the last three year’s performance in its Morningstar category.  In an exceptionally difficult environment, the fund has produced a steady 7.64% per annum return since its inception in September 2014.

Fund Objective

The Fund is diversified across geographic regions, asset classes and fund managers. Its objective is to provide investors with real medium to long-term capital growth from a portfolio that maintains a moderate risk profile.

Fund Strategy

The Fund is managed conservatively with an emphasis on capital preservation. The strategy is to merge the asset allocation with our macro views while taking advantage of irrational pricing across all markets and to select the best funds to enhance our views.

Best suited for moderate-risk Investors

The Fund is best suited to investors with a moderate risk profile who require a balanced local and global investment exposure with a conservative bias and capital preservation.

Fund Performance

The Fund has returned 7.64% per annum since inception – September 2014 – ahead of its benchmark. The benchmark comprises a composite, global balanced asset allocation.

Over the same period of time inflation averaged 4.94% and the JSE returned 3.54% p.a.

Manager Outlook

The Fund continues to be managed conservatively with an emphasis on capital preservation. The Fund finished the year with a strong performance as it returned to outperforming the benchmark since inception. Investments in gold and the Satrix 40 at strategic times drove the good performance in the 4th quarter. Tactically, we switched our government bond investments into more stable, high-yielding income funds.

We maintain our view that global equity market valuations are still stretched as global interest rates continue to rise and economic growth slows. However, we see pockets of value in certain emerging markets including South Africa. As global market uncertainties persist, the Rand will remain vulnerable to fluctuations. With likely volatile markets ahead, the Fund is poised to take advantage of irrational pricing opportunities.

Click here to see the latest fund fact sheet of the Prosperity IP Worldwide Flexible Fund of Funds.

The post Prosperity WW Flexible FoF continues superb performance appeared first on Investonline.

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Let’s be frank! When investment performance is disappointing, managers look to the longer term to justify their returns. This is perfectly acceptable as it has been proven that the best returns are realised over a longer time period, +10 years.  The JSE has produced a 12.7% p.a. return over the last 10 years and 16% p.a. over the last 40 years.

However, disappointment comes largely with unrealistic investment return expectations which correlates frequently with investing in an investment portfolio that does not suit your personal risk profile.

2018 was an awful year for equity markets. The JSE All Share Index was down 8.5% and the MSCI World Index was down 10.1% in US Dollars. There have been far worse years such as 2003 and 2008 where the market slumped 40% and 32% respectively. However, the big concern for some investors is that over the last five years, the SA stock market has only returned 5.8% p.a. versus inflation of 5.4%.

The bottom line is that the sluggish returns over the last five years, coupled with an 8.5% decline in 2018 has been a correction of overvalued markets resulting in far more attractive investment opportunities today. Allan Gray believes that there is decent value in SA equities, way better than five years ago and their investments should produce in excess of 10% p.a. over the next four years.

Big Issues for 2019 – Locally – it’s all politics A general election in May

Where the ANC should improve their majority to 60% from 54%. This should give President Ramaphosa more support to make more meaningful government changes.

Fighting the unions

This will start with government employees as expenditure needs to be redeployed into more income-producing assets, such as infrastructure. The first big battle is likely to be with Eskom where a rumoured 30% of staff could be retrenched this year.

A Moody’s debt downgrade is still unlikely

Although it is unlikely to bring about a material increase to 2019’s economic growth (currently forecast at 1.9%), further critical government structural changes to boost economic growth should go some way to prevent an ultimate downgrade to junk status.

A range-bound Rand/Dollar

We expect the Rand to continue to remain range bound between 13.50 and 14.50 to the US Dollar in 2019. This will be largely driven by global market flows in and out of emerging markets. Although the fundamental fair value of the Rand to the US dollar is around 12, this stronger value is only likely to be realised towards the end of 2019 if successful government changes materialise.

International – A strong global economy, but risks are rising: Increased interest rates

The jury is out on how much more the US will raise rates in 2019. Rising interest rates slow economic growth and provide other areas to invest in, which equity markets don’t like.

Trade wars and populist political tension

These are unknown outcomes that are fueling further market fear.

A transforming Chinese economy

As China moves its economy more to consumer services, will strong economic growth persist?

Investment Outlook for 2019

We believe investment returns will be better in 2019. Much of the global disruptions and bad news anticipated for 2019 are priced into the market. However, sector selection will be important, such as local vs offshore, developed vs emerging economies, industrial vs financial vs resources. Big diversions in these different areas have created opportunities and therefore we believe there will be large differences in fund performances.

Volatility is likely to remain in 2019, but it brings great investment opportunities. Choosing the right investment/unit trust is key. Although we see more value in local versus offshore investments, we will initially maintain a conservative approach as a ‘new’ political landscape unfolds.

Our Prosperity Fund continues to perform well with an annualised 7.6% p.a. return since inception (September 2014) and ranked 3rd over the last three years in its Morningstar category of 47 funds. We believe the fund should continue to produce steady, outperforming returns.

We recommend re-addressing your investment goals in order to ensure your risk profile is aligned with your investment strategy. Let one of our Financial Advisors formulate a financial plan with you to ensure the most appropriate investment strategy is in place.

The post Investonline: 2019 the year of reckoning – Hold on appeared first on Investonline.

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2018 has tested investor patience

2018 has been an extremely frustrating year for investors as markets have fluctuated wildly.  The JSE All Share and World MSCI Indices’ returns year-to-date are down 11% and 2% in Rands respectively.

Equity markets by nature are volatile and this is a critical aspect that investors need to understand and tolerate. Markets have corrections. This is when valuations are normalised or brought back to their long-term averages. I have worked through three previous market corrections: 1988, 1999 and 2008. Interestingly, these occasions are all 10 years apart. These periods prompted fear, but also brought enormous opportunity.  The lesson learned was, despite the associated fear as values were declining, the world was still the same place and life continued normally for most people despite the immediate pain of a decline in savings. As we know, markets recovered within a few years and no hardship was felt for investors who remained resolute and patient.

Unlike 1988, 1998 and 2008, which were short, sharp corrections, the last four and a half-year period of volatility, combined with a zero return from the JSE, is actually another form of a market correction. Unfortunately, this has been a slow torturous correction as valuations have once again readjusted back down to more normalised levels.

Savings must take on risk to beat inflation

We all need to save. For your savings not to be eroded by inflation you need to invest in some form of asset that will grow above inflation (6%) after tax, which is around 9% before tax. An investment with a reputable bank in a money market or fixed deposit account will not give you this required return to beat inflation over the long term. Therefore, a growth asset (which carries risk) needs to be included in your investment portfolio. The best area to invest in a growth asset is the stock market through a unit trust. Unfortunately, risk is coupled with volatility, which requires a longer-term period to realise your desired above-inflation return.

None of us like to see the price of our investments fall, but unfortunately this is a part of long-term wealth creation. During periods of low returns, as an investor, it is critical to remain focused on your long-term objectives; sit tight so that you don’t lock in losses.

Remember, in investing, the lower the historic market returns, the greater the potential for improved future returns.

Investonline had another fantastic year

Although markets were challenging, our clients benefited from us adopting a lower risk investment strategy. We cautioned that equity market valuations both locally and globally were stretched and that portfolios should hold lower than normal equity allocations. This has put our clients in good stead as their investments have not declined as much as the markets in 2018, resulting in an average outperformance of 3% year-to-date across our different risk-profiled portfolios.

I want to thank our clients for being patient and resolute through this difficult investment environment. We are constantly working hard as we research and engage with various market participants to provide the most proactive (not reactive) solutions.

As a business, Investonline has had another strong year growing our assets and client base significantly. The highest quality of advice remains at the forefront as constant training kept staff up to date with the latest legislation and abreast of the ever-changing investment environment.

Learning remains a key pillar of the business, which encompasses market research seeking the latest financial planning techniques.  We continue to invest in our staff and employed a variety of consultants to enhance our financial planning tools and information systems.

Our culture of hard work and client service continues to enhance our in-depth knowledge of financial planning and promotes better investment solutions.

Investment Outlook for 2019 in South Africa

We believe investment returns will be better in 2019. Much of the global disruptions and bad news anticipated for 2019 are priced into the market. However, sector selection will be important, such as local vs offshore, developed vs emerging economies, industrial vs financial vs resources. Big diversions in these different areas have created opportunities and therefore we believe there will be large differences in fund performances.

Understanding what is priced into an investment is always the most difficult part to understand or calculate for investors. Only highly experienced investors can get this right and that is why selecting the right unit trusts remains the best place to invest. We have done well in these selections through our investment strategies and philosophy process.

We look forward to another successful year of ensuring that our clients have the best financial plan that provides them with the most suitable investment strategy to match their particular needs.

We wish you a festive holiday and look forward to working with you in the new year.

The post A frustrating 2018 but 2019 should be better for investors appeared first on Investonline.

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