In the Business Beyond Covid series, CEOs and other business leaders and experts in their sectors look to the future after Covid-19. What effect has the pandemic and resulting lockdown had on their industries and SA economy as a whole, which parts will bounce back first and which will never be the same again? Most importantly, they try to answer the question: where to from here? The Covid-19 pandemic has swept the world like a firestorm, resulting in a shell-shocked global economy and frayed social fabric. Just one thing is certain as we look to a future beyond lockdowns: this crisis will bring about lasting structural changes about which we can only guess. We are firm believers in the importance of staying invested through market cycles, even when it feels uncomfortable. Market volatility is one of the few reliable things you can predict in the investment world; you don’t know what prices are going to do next month or next year. All we know is that prices are going to move about, often more than the investment fundamentals and underlying cash flows of the asset classes. Saying that we’re living in volatile times right now is an understatement. In March, the first wave of the pandemic hitting many countries coincided with an oil war between Saudi Arabia and Russia, causing a collapse in the oil price, a global markets liquidity crunch and in SA a ratings downgrade. Together, these caused a sharp contraction in the markets in March, but by April we were already seeing a market recovery. And while many economists are predicting a global recession, it’s important to remember that stock markets are not the economy; the market always looks forward and through the noise. What will the investment sector look like post-pandemic? The immediate impact will be felt by small and medium enterprises (SMEs) operating in the sectors most affected by the lockdown, with resulting unemployment. There will be casualties and business closures, but many companies will survive and emerge stronger as they adapt their businesses to the new world. We will also see new businesses and industries rise as a result of market demands associated with the new world. It is all about adapting to new markets and realities, and doing what is necessary to stay relevant and alive. From an investment perspective, in times of market volatility mispricing occurs, providing investors with opportunities to buy quality businesses at attractive prices. For investors we believe that while the economic environment will be much tougher, we’re going to see an increase in the willingness to save and the importance of having these savings for uncertain times. There will be a shift in the way we spend our income, with a greater awareness of our discretionary spend. This will be a good outcome as South Africans have traditionally been undersaved, and regardless of income most live from month to month. We’re going to see far less comfort in the traditional concept of a job. Many people have had a false sense of security about earning salaries and are permanently employed. This pandemic has shown how quickly that perceived safety net can be whisked away. We are all more vulnerable than we ever imagined. We can expect to see people looking to diversify their income streams to build up their savings pool. The psychological effects on investors will vary and the role of the financial adviser in a post-Covid world will become critical. The big shift we are going to see is a greater focus on the role of the adviser as a behavioural coach and providing holistic financial advice. Their most important role in a post-Covid world will be to help their clients avoid emotional decisions and not overreact during periods of market volatility. They should be steering people away from selling out their investments at the bottom. Helping them stay the course, stay focused on their financial plans and stick to their goals at a time when their income and spending patterns may have changed. One of our concerns is that the psychological effect of the pandemic will put a dent in SA's legendary entrepreneurial spirit. We worry that the lasting scars will make our small business owners and investors more cautious and less willing to take chances and restart. Hopefully our unquenchable optimism will shine through and become a driving force in the broader recovery of the country and its economy. What can investors do to prepare for a world beyond Covid? The most important thing is to realise that the emotional reactions they are experiencing as a result of the pandemic, and its effects on their investments, are perfectly normal. Research has shown that investors feel the pain of losses twice as much as they enjoy the pleasure of gains. A natural reaction to financial loss is fight, flight or freeze, and thus the burning need to do something. But they should not succumb to the urge to act on those emotions. Rather, they should speak to their financial advisers and get back to their original goals, which, for most people is to replicate today’s lifestyle tomorrow. That might even mean seeing this period of upheaval as an opportunity. Our view is that when we have periods of market volatility it is often a time when investors should be adding more to their investments rather than taking them away. Legendary investor Warren Buffett always says he likes his stocks the way he likes his socks: on sale. There’s an old saying in the investment community that you make your money at times like this. You just don't know it at the time. To get advise on investment options with a track record of good returns, please contact Kevin, email: invest@daberistic.com tel no: (011 658-1333 Written by: Victoria Reuvers (MD Morningstar)
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South African Market Update The Governor of the South African Reserve Bank, Lesetja Kganyago, announced a reduction in the repo rate of 100 basis points from 5.25% to 4.25% (its lowest level since 1973) during April in response to the Covid-19 pandemic, which will provide additional relief to SA consumers and businesses after a similar move in March. President Cyril Ramaphosa announced a R500 billion economic support package in Phase 2 of government’s response to the Covid-19 pandemic. One of the most notable announcements was a R200 billion loan scheme to assist small and medium size businesses in paying out salaries and other expenses. Following the downgrade by Moody’s of South Africa’s sovereign credit rating to sub investment grade in March, both S&P and Fitch both downgraded their credit ratings for SA further into sub investment grade territory during April. Headline inflation remains well contained, with the year-on-year figure to the end of March 2020 slowing to 4.1%. The largest contribution to the lower inflation figure came from the petrol price decrease in March, which contributed more than 50% of the decrease from the headline inflation figure reported at the end of February. See below for a summary of the key market movements for the month of April:
• The JSE All Share Index (+14.0%) moved significantly higher during April, largely driven by strong performance from Sasol and gold and platinum counters. • All local equity sectors finished the month higher, with Resources (+23.0%), Financials (+11.9%) and Industrials (+9.6%) all ending the month with strong returns. • Listed property (+7.0%) also ended the month higher, however, the asset class remains the worst performing local asset class year-to-date. • Local bonds (+3.9%) finished the month higher, as lower interest rates and well contained inflation led to investors taking advantage of the attractive real yields on offer. • Cash delivered a stable return of +0.5% for the month. • All major developed equity markets ended the month higher, with the largest contribution to the strong returns coming from US equities. The MSCI World Index delivered a return of +11.0% for the month. • Emerging market equities also delivered strong returns for the month. The MSCI Emerging Markets Index delivered a return of +9.2% for the month. • All major equity markets ended the month in the black, with Germany’s FSE DAX (+9.1%), Japan’s Nikkei 225 (+7.8%), the UK’s FTSE 100 (+5.7%) and China’s Shanghai SE Composite (+4.6%) all delivering strong performance. • US equities ending the month significantly higher, with both the NASDAQ 100 (+15.2%) and the S&P 500 (+12.8%) rebounding strongly during the month. • In terms of commodities, all major commodities ended the month higher. Oil (+11.1%) recovered some of its significant lost ground since the start of the year, while Gold (+5.8%) and Platinum (+5.5%) also ended the month higher. • The rand was weaker against most major developed market currencies for the month. The rand depreciated against the pound sterling (-4.4%), the US dollar (-2.8%) and the euro (-2.6%) during the month. *All data is sourced from Morningstar Direct as at 30/04/2020. The performance of South African asset classes is quoted in rands and the performance of global asset classes is quoted in US dollars. Take advantage of the positive market sentiment with Discovery Invest investment opportunities
There has been a wave of positive sentiment in South Africa following Cyril Ramaphosa’s election as president, with positive reactions to the budget speech and a strengthening of the rand. Investors’ sentiments are on the rise again. With this positive investor sentiment in mind, Discovery investment opportunities provide clients with:
To get a quote on different Discovery Investment options, please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Discovery invest Around this time of the year, we would like to remind you to consider topping up your retirement annuity fund. Discovery is one of our preferred providers for Retirement annuity and it makes your life easier for you by:
Your contribution must reach Discovery by 28 February 2018 for your investment to go through before the end of the tax year. For more information on the Discovery Retirement Plans, please respond to this mail so that I can arrange an appointment with you. To top your retirement annuity , please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Discovery Discovery Balanced Fund is a flagship fund offered by Discovery Invest. It is only available on the Discovery Invest platform. It is managed by Chris Freund of Investec Asset Management, a very experienced and successful portfolio manager. He manages investments using an earnings revision approach. Discovery Balanced Fund has attracted a lot of inflows, in fact the fastest growing balanced fund in South Africa, thanks to clients and advisors' support, benefiting from the integration and unique features of a range of Discovery Invest products. Discovery Balanced has been a consistent top-quartile performer in the high-equity balanced fund sector, with the (annualised) performances figures as follows: 10 years: 10.14% 5 years: 11.52% 3 years: 8.05% 1 year: 11.34% This fund has a high cost, with a Total Investment Charge (TIC) of 2.12%. This makes it one of the most expensive balanced funds to invest in. I question this high fund management fee, even given its good performance figures. Were it not for various integration and fee reduction structures offered by Discovery Invest for investing in a Discovery fund, this will erode net returns to investors over the long term. Discovery Balanced Fund is suitable for general long-term investment. Being Regulation 28 compliant, it is suitable for use in a retirement product.Below is the link to download Discovery Balanced Fund's fund fact sheet as at end December 2017. To invest in Coronation Fund, please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Kevin Yeh (LInkedin) Discovery Balanced Fund is a flagship fund offered by Discovery Invest. It is only available on the Discovery Invest platform. It is managed by Chris Freund of Investec Asset Management, a very experienced and successful portfolio manager. He manages investments using an earnings revision approach. Discovery Balanced Fund has attracted a lot of inflows, in fact the fastest growing balanced fund in South Africa, thanks to clients and advisors' support, benefiting from the integration and unique features of a range of Discovery Invest products. Discovery Balanced has been a consistent top-quartile performer in the high-equity balanced fund sector, with the (annualised) performances figures as follows: 10 years: 10.14% 5 years: 11.52% 3 years: 8.05% 1 year: 11.34% This fund has a high cost, with a Total Investment Charge (TIC) of 2.12%. This makes it one of the most expensive balanced funds to invest in. I question this high fund management fee, even given its good performance figures. Were it not for various integration and fee reduction structures offered by Discovery Invest for investing in a Discovery fund, this will erode net returns to investors over the long term. Discovery Balanced Fund is suitable for general long-term investment. Being Regulation 28 compliant, it is suitable for use in a retirement product. Below is the link to download Discovery Balanced Fund's fund fact sheet as at end December 2017.
You may have heard of a return on an investment, but have you heard of an investment measure called the internal rate of return (IRR)? The return on investment (ROI) – sometimes called the rate of return (ROR) – is the percentage by which an investment has increased or decreased over a certain period. By contrast, the IRR measures the actual return on an investor’s money in a portfolio. The IRR calculation takes into account all fees, the investment term, and additional investments and withdrawals, and calculates the growth of the investment in a meaningful way. This enables investors to determine whether their portfolio is on track to achieve the return they need to maintain their standard of living. The IRR calculation shows a portfolio’s return on an annualised (per year) basis. If, for example, you had R100 on January 1 and R110 on December 31, and you made no deposits or withdrawals between those two dates, your IRR would be 10% for the period. If, however, you made monthly deposits of R1 (or R12 in total) and your portfolio was worth R110 on December 31, you would have a negative IRR of –1.9%. After investing a total of R112, you would have less money (R110) than you invested. If, on the other hand, you withdrew R1 every month and you had R110 at the end of the year, your IRR would be 23.2%. Your cash flow during the year would have been R12, and you would have ended the year with an additional R10 in the investment. The IRR calculation is also referred to as the money-weighted return calculation. This is different from a traditional time-weighted return where we exclude any client-generated cash flow in and out of the portfolio and look only at the initial value (R100) and the final value (R110) and get a return of 10%, which ignores how much money had been added or withdrawn over the period. Although these are very simple examples, they illustrate the importance of knowing a portfolio’s IRR. In reality, additional variables, such as fees, are taken into account, thereby providing a more realistic picture of your return. Knowing your portfolio’s IRR is important, because it enables you to monitor whether you are progressing towards achieving your financial goals. It indicates the actual return, including cash flows in and out of your portfolio, over the period. By comparing the IRR to your required rate of return – the rate that your portfolio needs to achieve in order to meet your lifestyle requirements, for example, inflation plus 2% – you will be able to assess your progress towards your goal. Interestingly, two people may be invested in the same portfolio but have a different IRR, because their deposit and withdrawal patterns are different. Let’s say, for example, that the market increases 10% over the year, but it first goes through a valley, falling 5% in the middle of the year. If Investor A added to her portfolio while the market was in the valley, whereas Investor B made a withdrawal, it means that Investor A bought at a discount, while Investor B realised a loss. In this example the portfolios’ overall performance was the same, but their individual IRRs will be different. If, during a financial planning exercise, calculations show that you need an annual return of 3% above inflation to achieve your lifestyle objectives, the calculation assumes that, as long as the money is invested in your portfolio, it is earning 3% above inflation. The IRR calculation is the most appropriate formula for checking whether you are actually earning what your financial plan says you need. To get advise on investment options with a track record of good returns, please contact Kevin or Thato, email: invest@daberistic.com tel no: (011 658-1333) Source: Business day live |
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