A financial planning priority list … and why you need one

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By Richus Nel, Certified Financial Planner®

If you think having investments, saving money, drawing up a budget (and sticking to it) and some sort of strategy for your retirement is the full story for a financial plan, think again.

Every individual needs a financial planning priority list that covers every aspect of their financial life, beyond the four most obvious aspects. This list will guide you through what is needed.

WILL

Anyone with assets or dependents, should have a will. In the absence of a will assets are bequeathed based on the RSA Law of Intestate, which is slow and frustrating to any surviving dependents. For a will to be valid it must adhere to this:

It must be in writing.

  1. Drafted / executed correctly.
  2. In the document the intention must be evident that this document serves as the deceased’s will.

Some lesser known aspects are:

Guardians of children cannot sign a will as a witness.

  1. A foreign will is required for direct foreign assets.
  2. Following a divorce, a will must be amended within three months, otherwise the divorced spouse will benefit as normal from the estate in accordance to the existing will. Within the three months’ time frame, the surviving spouse will be regarded as predeceasing the deceased and will not benefit. (Section 2B Wills act)

LONG-TERM RISK COVER

Many people think risk cover only refers to life cover and is only necessary for people with dependents or perhaps a business that will require proceeds from an estate. However, that is not all it refers to. Risk cover also denotes income protection cover in case of illness or an accident and cover for disability or dread disease. Cover for disability or dread disease is maybe not that critical but should be considered against the individual’s family’s health and medical history.

Other issues to note regarding risk over:

Consider “later” affordability of cover, based on the chosen premium pattern (normal age rated, aggressive or level).

  • Stand-alone benefits vs. accelerators – remember that it is always more difficult to obtain risk cover when you are older, due to an accumulation of medical history.
  • Cover growth vs. inflation (again considering with regards to above).
  • Group life cover at employer – ensure the portability of that cover when changing jobs. If not transferable, obtain own risk cover.
  • If one has an extreme medical condition, “group life cover” could be a more affordable and in some cases the only route due to the fact that this typically does not require a medical examination.
  • If a beneficiary is nominated on life cover, the pay-out is free from executor’s fees. If no beneficiary is nominated, the policy pay-out goes to the deceased estate (forms part of the residue) and hence carries executor’s fees. If no beneficiary was nominated, the respective cover amount needs adjustment for the executor’s fee and estate duty portions.

MEDICAL AND SHORT-TERM INSURANCE

The other two key components are medical cover (also gap cover for medical expenses not covered by the scheme) and short term insurance. It is important to look at the fine print and not only focus on the perceived affordability of the premiums with short term insurance.

TAX EFFICIENCY

Any sound financial plan should be cognisant of taxes payable and effort should be made to create tax efficiency. Governments the world over are under pressure and are constantly seeking new ways to tax citizens. Make sure of the rules regarding tax deductions, issues like transfer duties, donations tax and the tax regime relevant to trusts and businesses. Capital gains tax has particular rules that investors should be aware of. As the rules change regularly, the assistance of a tax advisor or financial planner can make a significant difference to make tax affairs efficient.

BUDGET

Probably the most talked about aspect of a financial plan is budgeting. Many individuals still think budgeting only refers to making sure you live within your means. You should always seek to curb spending but don’t forget also to look at ways to earn a second income. Save as much as possible for retirement, for a “rainy day” and for unforeseen expenses.

RETIREMENT PLANNING & SAVING

Possibly the biggest issue to include in a financial planning flowchart is retirement planning and general saving. It has been widely reported that people are living much longer that when the practice of retirement came into effect. Against this background of “longevity”, the conventional thinking around saving for retirement is outdated.

Individuals should consider different investment options around retirement. They for instance have to choose between, for instance, “passive investment” (listed financial instruments) vs. “actively managed investment” (e.g. investment property or business activity). The different vehicle options that are available for passive “market-linked” investments include retirement vehicles, discretionary investment and now also the new “tax free savings account”. The best suited vehicles should be considered based on your own unique circumstances, driven by your taxability and liquidity requirements.

When investing, do not be blinded by economic forecasts (as we have seen in recent examples e.g. Brexit) reliable forecasts, can be very wrong. Rather invest in the highest quality advice, asset management choices and instruments to achieve your long term investment objectives.

ESTATE PLANNING and SUCCESSION

The last aspect to include is estate / succession planning. Think about liquidity at death and things like capital gains and taxes payable, executor’s fees, accrual claims, how a spouse’s massive accrual are settled if he/ she is not the heir of your estate. Preferably appoint a professional or joint professional executor. No surviving spouse or child is really emotionally charged for the administration of your estate

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Six month window to get offshore assets tax compliant

Photography for Brenthurst Wealth Management in March 2016 by Jeremy Glyn.

By Magnus L Heystek, Certified Financial Planner

In the wake of sensational news like the so-called Panama papers and a leak of documents of international bank HSBC that exposed global tax dodgers, governments around the world have agreed to take strong action to reduce international tax evasion through offshore assets. The new global standard on Automatic Exchange of Information (AEOI) will enable governments to recover tax revenue lost to non-compliant taxpayers, and will further strengthen international efforts to increase transparency, cooperation, and accountability among financial institutions and tax administrations. Additionally, AEOI will generate secondary benefits by increasing voluntary disclosures of concealed assets and by encouraging taxpayers to report all relevant information.

The South African government, like the G20 countries and several others, have agreed to this new global standard. The Standard requires financial institutions to report information on accounts held by non-resident individuals and entities (including trusts and foundations) to their tax administration. The tax administration then securely transmits the information to the account holders’ countries of residence on an annual basis.

It is against this background that it was announced in the 2016 South African budget that a six month amnesty period will be available to local taxpayers with offshore assets to regulate their affairs before the AEOI comes into effect in 2017.

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The SA Revenue Service has issued a draft guide on special voluntary disclosure programme, which from 1 October 2016 will offer non-compliant taxpayers an amnesty on offshore assets and income until 31 March 2017. The guide says the special voluntary disclosure programme is intended to encourage taxpayers to come forward on a voluntary basis to regularize their tax affairs with SARS and avoid the imposition of understatement and administrative penalties. Relief is available in respect of all taxes administrated by SARSS, but excludes duties charged in terms of Customs and Excise regulations.

SARS has confirmed that any person may apply for voluntary disclosure relief. However, a person that is aware of a pending audit or investigation, or is the subject on a not yet concluded audit or investigation, may not use the scheme.

Individuals and companies may apply. Trusts, may not. However, beneficiaries of trust may apply provided they deem the assets and income of the trust as their own. Taxpayers with pending audits or investigations regarding their offshore assets and taxes will not qualify for relief.

If you are unsure whether you are affected by this, do attend the FREE Brenthurst Wealth seminar ‘UNDECLARED OFFSHORE ASSETS’, hosted in association with Hogan Lovells. It will be presented at 16:00 on 20 October 2016 at the Westin Cape Town, Convention Square, Cape Town. To book click here: http://qkt.io/ntflRS.  For more information contact Daleen on 011 799 8100 or send message to pr@brenthurstwealth.co.za. Seats are limited.

Want to know more about the Panama Papers? Read here: http://goo.gl/1SCbNJ. Details about the HSBC leak here: https://goo.gl/DhZTgi

Elections, the rand and short term memory

By Brian Butchart, Managing Director

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The rand’s recent strength is not a reflection on any home-grown improvements, but rather international factors playing out, redirecting foreign capital to higher yielding emerging markets such as South Africa.

There is no doubt that the recent municipal elections have been the most exciting for years, with the possibility of change and hope for a better future.

The ANC has been accustomed to securing over 60% of the electorate voting in its favour in past elections. This time however, the ANC was given a run for its money. Although it was widely expected that the ANC would probably drop below 60% in the most recent election, very few expected it to be below 55% .

In turn this has been very uplifting for opposition parties who have gained stronger support from the electorate and is very positive for a young democracy such as South Africa.

This has also given South Africans a much needed boost of confidence for our battered and bruised psyche, especially after being bombarded over the past few years with bad news after bad news. Whether it was falling commodity prices, electricity shortages, the drought, political scandals, high unemployment numbers, or Nenegate there hasn’t been much to be elated about till now.

In addition the rand has recently strengthened to its best level since 2013 against the dollar to R13.19 at one stage. Since December 2015 the rand has vacillated uncontrollably between R13 and R17 making any decision to buy other currencies almost impossible.

See below the rand’s movement against the US Dollar from December 2015 to the beginning of August 2016:

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Some commentators have suggested the recent election results have bolstered the rand and although it may have been supportive, nothing fundamentally or with immediacy has changed in SA to concur this theory. Instead international factors at play have had a more meaningful influence on the local currency of late.

While foreigners continue to buy our bonds – this, we believe, is more as a result of renewed global search for yield, rather than as a direct result of the election. The US is unlikely to hike rates aggressively (despite good jobs numbers recently), the UK cutting rates and increasing QE as well as Japan stepping up QE are having a bigger impact on the “renewed search for yield” of which SA received some of these flows (10y bond yield at decent levels – foreigners are buying, supporting the Rand).

South Africa’s interest rates remain very attractive to foreign investors while global interest rates remain benign.

In addition on the 29th of July 2016, SAB Miller announced the pre-conditions and agreed timetable with Anheuser-Busch Inbev for the combination of the two companies which if successful should be finalized by mid-October 2016. The deal is worth approximately $104 billion which will translate into a sizeable flow of capital into the SA market which may also be influencing current exchange rates.

Most emerging market currencies have strengthened against all other major currencies as the renewed search for yield is evident after the recent decision from the Bank of England to reduce interest rates to 0.25%, and is therefore not isolated to South Africa.

These capital inflows however in the past have been very fickle on the back of any political risk or uncertainty. Any perceived risk and just as quickly as these funds flowed in, they flow out. This in turn has an impact on the balance of payments which affects the exchange rate.

Analyst at Landesbank Baden-Wuertemberg, Mathias Krieger, the rand’s best forecaster in a recent Bloomberg survey suggested the rand is overvalued and has little chance of strengthening in the next year due to the deteriorating competitiveness of South Africa and the “populist” policies of President Jacob Zuma and his government. Instead he says it may weaken to R17 to the dollar.

The ANC party may have been wounded by the recent elections, but have no intention of handing over power to opposition parties without a fight. The jostling for coalitions in the bigger metros has not yet been determined, but in the interim Zuma remains in power and the ANC remains the majority party until the next general elections in 2019. Will he remain in power until then and will there be a change in ANC policy? Who knows? Time will tell! What we do know is the impact he has had till now.

Just to jog your memory, not so long ago earlier this year in fact, SA averted a downgrade to junk status by ratings agencies and this risk too seems to have been forgotten.

Although Pravin Gordhan managed to avert a downgrade in June this year, the ratings agencies issued stern warnings to government to start implementing promised policy reform, which included amongst others cutting back on spending, privatisation or part privatisation of state entities and creating employment amongst others in order to encourage growth, and GROWTH is the very ingredient ratings agencies are looking for in order to avert a downgrade come December 2016.

What has been done to date? Nothing!

SAA remains in the control of a board who caused its woes in the first place and has just recently also been given control of Mango. Unemployment numbers recently reported are as high as 27% with no talk in the recent run up to elections as to how the ANC plans to improve this situation. Although the ANC indicated its commitment to cut spending, the very next day after we averted the downgrade, Zuma’s plans for a new jet hit the headlines.

At the last MPC meeting the Reserve Bank downgraded their growth expectations from 0.6% to 0% for 2016, so the risk of sub-investment grade come December 2016 or early 2017 has not dissipated. Not at all!

This reminds me of how short term our memory is, how fickle capital inflows are and how vulnerable the rand actually is.

So, as advisors, how do we read the current situation? And how as an investor should you be reacting?

Brenthurst Wealth for many years now has been advocating global investment exposure within our clients portfolio’s and those that heeded our advice have been rewarded handsomely, especially those who invested several years ago.

In 2011 the rand was at R6.60 to the US Dollar and even after the recent strengthening had you purchased dollars at R6.60, would have achieved more than 100% return on currency alone.

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However our motivation for advising clients to invest offshore was never currency alone, but rather to protect their wealth from the fortunes of one country such as South Africa and the risks it poses to your long term wealth creation as well as to expose your portfolio to opportunities which may not be available in South Africa.

Almost all technology and bio-technology stocks for example can only be bought internationally. Geographic specific exposure to Indian markets and global property stocks have offered fantastic investment opportunities and excellent US Dollar based returns over the past few years despite the recent global volatility.

Although the MSCI word index delivered a dismal return of -3.73% in US Dollars over 12 months to end June 2016, a lot of which had to do with Brexit towards the end of the period in question, most international funds Brenthurst Wealth has been using in the construction of offshore portfolios have done very well over longer periods of time and most recently over the last 6 and 3 month periods despite the global volatility.

Please find below the MSCI World Index, the S&P 500 and other international indices vs the JSE ALSI in order to illustrate how well international markets faired against the local market:

 In US Dollar

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In rand

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The longer term trend as is clearly evident from the above is that international markets have managed to deliver exceptional returns to South African investors when compared to the local bourse over longer periods of time in both US Dollar and rand.

For those investors who recently purchased US Dollars, the timing perhaps may not have been ideal, but an offshore investment is a long term investment of at least 5 years or more.

The rand’s longer term trend has been a depreciating currency for many years.

Whatever exchange rate you may have purchased at recently, may seem like a bargain 5 or more years from now if the trend continues to decline, which we believe it will.

Investment and wealth creation is a long term commitment that requires a strategy and patience which rewards the disciplined investor.

The recent election results are exciting and reason to be optimistic for the future democracy of South Africa. However there is a lot to be done by both ruling and opposition parties in the next few years before the next general election and will take time to build and repair the difficulties we currently face. In the interim we maintain that the rand remains vulnerable to local SA risks despite the recent strengthening of the currency which stems from the search for yield as international interest rates remain benign.

Any perceived uncertainty or risk of populist politics will put the rand under pressure.

If you were considering buying Dollars or investing offshore, now might be a very opportune time to do so.

 

 

Why an index fund in SA is not always the best option

By Magnus Heystek – Investment Strategist & Director

OVER the past number of years the popularity of index funds (passive investing) has increased globally, also in South Africa. Proponents of passive fund management, led primarily by companies such as Satrix, initially focused their marketing attention solely on the lower cost structure of index funds versus active managed funds. In the process the inherent risks in index funds were deliberately overlooked or concealed.

Index funds tend to do well in a bull-market when returns are driven by the surge of money flowing into markets and everyone looks good and everyone makes money. It tends to make earning good returns a very simple past-time.

Just buy the index and forget about everything else, was the mantra for a very long time. This claim was advertised-ad-nauseam on radio, public billboards and print advertising. Financial media also fell into the trap of repeating these claims, perhaps under pressure of the massive advertising revenue that comes with these claims. That is, until the market started spluttering and declining and the JSE All Share index started underperforming very poorly in recent years. Then the fault lines in index investing became apparent for all to see.

When last did you see an advertisement trying to convince you to invest in an index fund? To invest in index funds just because they are slightly cheaper than active managed funds overlooks the latent risks inherent in such an index. But as always tends to be the case in the investment world, some of these claims of investment superiority needs to be questioned in greater detail.

AT BRENTHURST WEALTH WE ARE OFTEN ASKED WHY DO WE NOT USE INDEX TRACKERS SUCH AS THE SATRIX 40 IN THE CONSTRUCTION OF YOUR INVESTMENT PORTFOLIOS.

Our standard answer for many years has been that (a) we are able to find active fund managers who can beat the index comfortably and (b) that the JSE Top 40 index is not, in our view, the appropriate index for most retail investors in South Africa and (c) at the time we felt the rand was headed for a period of weakness and that offshore funds would do better.

Due to the heavy concentration of resource stocks in the South African economy and hence companies listed on the Johannesburg Stock Exchange (JSE), the resource sector has historically had an inordinate (overweight) loading on the JSE with a very high degree of volatility. When compared to other major indices in other parts of the world, the JSE Top 40 was by far the most volatile and hence unpredictable index.

During the most recent boom in resources stocks, roughly from 2002 to end 2008, the SA Top 40 index did extremely well, but as the share of resources in the index rose year after year (due to resources outperforming banks and industrial companies) the risk also increased substantially.

It was towards the end of 2007 that I found myself in a radio debate on Radio 702 with a spokesman for Satrix who was trying to convince me and the audience that an investment in the Satrix 40 fund was a sound and stable investment. I disagreed and high-lighted the inherent risks that had been building up in the market, and hence the index, at that time.

I would not invest my client’s money into such a risky instrument, I averred on the Bruce Whitfield show. The index contained too many resource counters at the time, a risk which was not highlighted by the marketers of index funds.

These fault lines to which I referred to during the debate have since horribly been exposed over the past five years and in particularly over the last three, as a result of the collapse of resources shares on the JSE. Both the absolute as well as relative performance of the JSE Top40-index over the past 5 years have been very volatile with massive swings in both directions, either up or down.

When one looks at the performance of the JSE All share index over the past five years it reveals a pattern of underperformance (substantial) against global peers (MSCI World Index, for instance) while it also delivered very poor absolute returns, once again due to the large weighting to resource shares, which have suffered a terrible meltdown in values.

JSE VERSUS THE WORLD

Most of our long standing investors know we have been recommending offshore investing for some years now, well before the current bout of weakness and well before it became mainstream advice to diversify offshore.

In this respect our clients have been well served as the performance of an equivalent offshore index (MSCI World Index) at a cumulative return of 180,7% over 5 years, is DOUBLE that of the same investment in the JSE All share index.

Certain country specific-indices such as the S&P500, a broad measure of the performance of the US stock market, produced a return of more than 3 times than that of the local market.

So, investors who did not take their money offshore during this period of time, suffered a substantial relative loss on their local investments versus global counterparts.

The oft-held argument that the JSE gives you off-shore exposure via companies who earn part or all of their income offshore did not hold true, as was often claimed.

The damage to earnings as a result of the resources meltdown plus added negative local factors such as labour unrest and electricity supply issues weighed very heavily on company earnings in SA.

Over a five year period to end June 2016 two balanced funds – Allan Gray Balanced (14,6%p.a.) and Coronation Capital Plus (13,9%) beat the return of 13,6% produced by the JASE All Share, while the Investec Opportunity Fund returned 13.1%, almost matching the return of the volatile JSE All Share Index.

This outperformance is astounding, especially if one considers that balanced funds can only hold a maxi-mum of 75% of its assets in equities or property, but it was the ability to hold offshore assets that boosted returns substantially.

What is important is that these returns were produced at a volatility (deviation from mean) of HALF that of the JSE All Share index. This factor is sometimes overlooked when investment returns are analyzed.

Over the five year period in question the JSE ALSI has experienced significant volatility and massive draw-downs of up to 18% from peak to trough. Such periods of sharp declines in investment values often leads to emotionally induced reaction from investors, either withdrawals or switches into other asset classes.

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BALANCED FUNDS, ON THE OTHER HAND, SHOWS MUCH LESS OF SUCH VOLATILITY AND LESS ABER-RANT BEHAVIOUR.

PERFORMANCE: 4 YEARS

Over a four year-period the cumulative performance of the JSE All Share versus five balanced funds mainly used in our portfolio construction looks as follows: Allan Gray balanced (63,2%), Coronation Balanced Plus (57,1%), JSE All Share Index (54,4%), Coronation balanced 44,2%) and Stanlib Balanced Fund 43,8%).

PERFORMANCE: 3 YEARS

Over 3 years the same comparison looks as follows: Allan Gray (45,4%), JSE All Share (43,5%), Investec Opportunity (39,5%), Coronation Balanced(37,9%), Counterpoint Balanced (31,3%) and Standard Balanced (30,6%).

PERFORMANCE: 2 YEARS

It’s over the past two and one years that the comparative investment returns diverged substantially. The cumulative performance over 2 years shows the Investec Opportunity Fund (20%) and Allan Gray Balanced (19,3%) returning more than double the return of the JSE All Share index which returned a mere 8,1% over the same period of time. The other three funds (Coronation Balanced (12,8%), Counterpoint Balanced(10,4%) and Stanlib Balanced (10,4% beats the volatile JSE All Share over the same period of time.

PERFORMANCE: 1 YEAR

Over a one year period the comparison looks even worse. The JSE All Share (2,8%), lagging far behind Investec Opportunity (15,4%), Allan Gray Balanced(14,9%), Counterpoint (6,7%), Stanlib Balanced (5,1%) and Coronation Balanced (3,5%).

SUMMARY: We often find that investors are influenced by biased advertising, based on short-term trends. The same applies to other fads such as dieting and medication, for instance. But nothing replaces independent and objective research and analysis to show up the short-comings of such a superficial approach to investing.

Do not hesitate to contact any of our investment advisors if you have any more questions or wish to discuss your investment strategy.

Feeling poor? It’s not your imagination

SA’s middle class is being crushed by rising inflation and declining asset values.

Double digits? Unlikely but not impossible

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By Brian Butchart, Managing Director, Brenthurst Wealth

Investors seeking double digit returns for the next five years better prepare for risk and volatility in the quest to achieve returns beyond the averages markets have been delivering in previous years.

The economic recovery in the US is slow, European markets are just ticking over and not moving at a great pace, the slowdown in China has been well publicized for some time now and emerging markets have experienced all manner of problems predominantly related to the commodity cycle downturn.

Even though investment is a long term pursuit these difficulties translate into the need for investors to be prepared to invest for longer to build sufficient capital. This makes retirement planning especially very difficult, made more pronounced by the already significant increases in life expectancy. Younger investors will have to work much longer to achieve nest eggs comparable to that of a generation ago.

A research report by global management consultancy McKinsey & Co released at the end of April states that investors of all ages need to resign themselves to diminished gains. According to the report the last 30 years have been a “golden era” of exceptional inflation-adjusted returns thanks to a confluence of factors that won’t be repeated. These include falling inflation and lower interest rates, swelling corporate profits and expanding price-earnings ratios in the stock market.

“The next two decades won’t be nearly as lucrative, even on the optimistic assumption that the world economy snaps out of its recent slump and resumes faster growth,” according to the McKinsey report.

Global asset management company Blackrock said this in the company’s investment blog published mid-April: “Investors aiming for higher returns over the next five years should be prepared to stomach more volatility.”

South African investors face additional challenges, beyond the effect of the slowdown in China and the commodities cycle collapse. The country is experiencing the worst drought in decades which has already pushed food inflation to levels not seen in years. Interest rates are rising, placing additional pressure on households already stretched by higher electricity costs and much higher fuel prices. This does not bode well for a range of industries, notably retail and property. In addition political upheaval is creating downward pressure on the local market and especially the already hammered currency.

For the past year to 3 May the JSE All Share delivered a cumulative return of 0.2% in rand, while inflation averaged at 5.3%; which means investors in the local market achieved negative real returns. For the same period the MSCI World Index delivered 13% and money market investments just above 5%.

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So where to go and what to do amidst this gloom and doom? It is more imperative than ever to consult with an accredited financial advisor that can assess all factors including risk profile, investment goals and an investor’s financial objectives.

The general outlook, locally and globally, is not good at all. McKinsey estimates that the US will show growth in the region of 1,9% for the year. For South Africa growth expectations have been lowered time and time again and currently is set at 0.6% for 2016, well below what the economy needs to create jobs and deliver investment returns.

However, this does not mean that double digit returns are out of the question. Asset and wealth managers have access to research and investment options individual investors do not and are also up to date with the demanding regulatory investment environment, especially changes in tax regulations.

Having a balanced portfolio, with bias towards offshore assets remains Brenthurst’s strategy to smooth out the volatility, and improve expected returns from the local market. Diversification between specific asset classes, regions and industries has become more important in the current market environment. With an experienced financial planner the investment road will still be rocky and plagued by volatility. However, better returns than the market averages are still possible, albeit much more difficult than in previous years.

SOURCES: www.bloomberg.com www.blackrockblog.com

 

Junk status … cash under the mattress?

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By Brian Butchart, Managing Director, Brenthurst Wealth

Junk status for South Africa has been dominating economic news for months now and as it is increasingly looking inevitable, investors are jittery to the point of full scale anxiety about what this will mean for their investments.

The good news is the investment world is a big place and while the local market will most certainly take a knock – on a similar spectacular scale to what happened in the wake of the well publicised Nenegate of late last year – there are opportunities elsewhere.

The outlook for the local market has been rather bleak for years, not only since the most recent economic and political events, and savvy investors have started to move larger portions of their portfolios offshore. Brenthurst advised clients to do so five years ago and through this achieved some protection from the drama playing out in South Africa and the consequent decline in US dollar values across various local asset classes.

The key to surviving the current storms brewing is a balanced portfolio that includes a range of asset classes but with a focus on international exposure. A well balanced portfolio should provide exposure to equities, local and international bonds and the money market.

Although several leading economies are not growing at any impressive rate, there are sectors, industries and companies around the world with excellent future prospects and these will continue to deliver acceptable and in cases even impressive returns. This includes the healthcare and biotech sectors, supported by the significant ageing ‘baby boomer’ generation and their need for health care as they are living much longer than previously imagined. Selected technology stocks continue to do well, supported by the demands of the so-called millennials, and the many companies selling global brands in several countries and regions have experienced continuous growth. The world’s biggest brands like Apple, Sony, Nestlé, Nike, Samsung and others do experience lower demand in some countries but are so dominant that they continue to deliver smooth growth. A distinct benefit in times of market drama.

Moving more money to cash in the current heightened volatility is also a good strategy. This way in investor is well positioned to take opportunities when available.

Although some commentators are holding out slim hope that a downgrade to junk can be averted, consensus amongst 60% of CEOs surveyed – as mentioned in Business Day – is that it is a certainty. Alex Pestana, Portfolio Manager at Counterpoint Asset Management, agrees that the downgrade to junk status is highly likely but expects this only in the second half of the year and not in June as some have speculated. According to Pestana the downgraded growth expectation announced in the budget address, at a paltry 0.9%, was after S&P’s last grading. “Growth remains the challenge, and increasing debt levels to keep the economy going is just not a good plan.”

Pestana notes that the 2016 budget did not go far enough in raising taxes, mostly out of fear of the political fall-out should, for instance, VAT be raised. “A lot of what was expected did not materialise. The guarantees provided to state-owned enterprises is another big worry. Especially given the fact that South Africa does not save enough. If the junk status happens substantial amounts of capital will leave SA as it is a requirement of many institutional fund investors that investments not be held in countries with junk status.”

Another huge worry lying ahead is the so-called ‘strike season’. Rising inflation, driven especially by food inflation and higher electricity costs, have reduced spending power and there will be pressure for well above inflation wage increases. “If these are met, the situation will indeed be grave,” Pestana says.

History has shown there have been good and bad periods for investments and markets over very long periods of time. This is something that will always remain as a result of the many factors which impact and influence the direction markets take. The JSE didn’t fair too badly over the past six years post the crash of 2008, however there were other opportunities abroad which did considerably better which we could not get access to via the local markets.

In order to ensure successful long term investment strategies through good and bad times investors must review and adjust asset allocation as effectively and as efficiently as possible. This would include taking into account the current and expected future market environment as well as taking into account tax implications any adjustment will have on immediate and future investment capital. This is an ongoing process which is best attempted with the guidance of a professional financial advisor who can regularly review income levels, asset allocation, performance, impact on capital and current market environment based on personal circumstances, to mitigate risk and ensure successfully achieving investment objectives.