Investment Seminar

Buying the market and following trends is comfortable, but the best investment ideas are often found where others fear to tread. Therefore, unless you are happy to invest in an index, it is a good idea to seek out an asset manager who guards against ‘herding’, and an independent financial adviser who can help you stick to your objectives when you are being tempted by the crowd.

In the wake of the news of our credit rating downgrades, business confidence was severely shaken, unsettling investors. Poor sentiment is a problem, but an even worse problem is the lack of growth and the rate of the increase in debt and debt servicing costs. This is what concerns the ratings agencies, and this is what could lead to a downgrade of even our local currency debt ratings, which could cause a mass exodus of foreign investors. This kind of herding has the potential to derail our fragile economy.

Risks are elevated in the current environment. This means you should think about how much risk you are prepared to take on. Think about your risk capacity, i.e. how much risk you can afford to take and your risk appetite, i.e. how much risk you are willing to accept in pursuit of superior returns. Your answers should inform your investment decisions.

The net equity exposure of our flagship unit trusts matches our risk appetite in those unit trusts and the asset allocation is managed accordingly.

News about private hospital operator Life Healthcare’s international investments has created negative sentiment about the company and the share price has dropped and investors have exited. This provides a great example of herding at individual stock level. We see situations like this as the perfect opportunity to add to our position at discounted prices.

There has been a lot of press coverage on Net1, the parent company of the current social grants payment provider Cash Paymaster Services (CPS). Leonard gives a quick summary of events, noting that Net1 announced that Serge Belamant would retire as chief executive officer (CEO) and director of the company at the end of May and Herman Kotzé, currently the company’s chief financial officer, had been appointed as CEO effective June 1, 2017.

We integrate Environmental, Social, Governance (ESG) and sustainability issues into all stages of our investment process. As long-term investors we think very carefully about the sustainability of the business models of companies before investing in them and work hard to improve the governance of companies once we are invested. Our analysts and portfolio managers formally engage with company representatives throughout the year. We also provide voting recommendations for general meetings of companies which have a material weight in client portfolios and for smaller companies in which our clients collectively have significant holdings. We publish our voting recommendations, together with the outcome of the shareholders’ vote on each relevant resolution, quarterly on our website.

The FTSE/JSE All Share Index has largely moved sideways over the course of the year. PE ratios are high and one has to look hard for pockets of value. If you strip out Naspers and SAB Miller, the market has not moved much. Given the current environment, we are pleased that our flagship unit trusts have managed to outperform their benchmarks and inflation over the latest 3-year period.