Webinar: A New Dawn Webinar | INN8 Invest

Summary

Highlights

• A lively discussion on the impact of the Government of National Unity on South African markets. 🇿🇦
• Insights from top portfolio managers on strategic investment choices in current global and local contexts. 📊
• Deep dive into risk profiling and its importance in retirement planning. 🤔
• Exploration of investment opportunities in SA equities, bonds, and beyond. 💰
• Perspectives on the role of AI and technology in investment strategies. 🤖

Key Takeaways

• The coalition government in South Africa, the Government of National Unity, brings both optimism and uncertainty. 🇿🇦
• Private sector investment is seen as crucial for driving growth in the South African economy. 💼
• South African equities and bonds present various opportunities, but careful selection and strategy are vital. 📈
• A dynamic living annuity approach can provide more flexibility and security for retirees. 💡
• There are differing perspectives on the potential of local versus global investments post-election. 🌍

Overview

Chapters

• 00:00 - 01:00: Introduction to Webinar The introduction begins with a greeting and thanks to participants for joining the webinar. The focus of the session is mentioned as 'election results,' though it is noted that the outcomes and consequences are not yet known or discussed.
• 01:00 - 10:00: Election Results and Political Climate In a significant political development, the incumbent party lost its majority for the first time in 30 years, resulting in a coalition government being formed. The new coalition is dubbed the 'Government of National Unity.' This chapter explores differing opinions on whether this marks a positive change or a harbinger of uncertainty. Key discussions include the impact of this political shift on the South African economy, investment landscape, and implications for individual clients and advisers.
• 10:00 - 18:00: Market Overview and Performance In this chapter titled 'Market Overview and Performance,' the focus is on an upcoming session featuring portfolio managers from renowned investment firms Alan Gray, Bachal Capital, and Lauran Capital. The discussion, lasting approximately 90 minutes, is presented as an exclusive opportunity provided by Invest, one of South Africa's prominent DFMs, to engage with major investment managers. This session promises insights into market perspectives and includes an interactive component involving real financial advisors, which adds practical value to the discussion by addressing often overlooked advisor insights.
• 18:00 - 27:00: SA Bonds and Investment Strategies The chapter titled 'SA Bonds and Investment Strategies' introduces a webinar session featuring Rico Fenter, the joint head of portfolio management at Inate Invest. Rico will provide updates on the performance and direction of the model portfolios managed by Inate Invest. The session encourages interaction, allowing participants to submit questions via a chat function. The introductory remarks emphasize the session's purpose of benefiting the attendees, setting a collaborative and informative tone for the discussion that will follow.
• 27:00 - 38:00: Global Perspectives and Risks The chapter titled 'Global Perspectives and Risks' focuses on providing a brief overview of performance and presenting a high-level outlook for the market and model portfolios. A key theme emphasized is the significance of capitalizing on local opportunities, which has been a strategic focus over the past year. The chapter likely explores how such opportunities have been advantageous across various N Solutions.
• 38:00 - 48:00: Impact of US Political and Economic Changes The chapter discusses the performance of major asset classes over the last 12 months, highlighting a significant 18.8% return in Global equities, a moderate 5.4% return in Global bonds, and a 10% recovery in SA Equity. These figures indicate a strong performance in global markets, with equities being the standout asset class.
• 48:00 - 57:00: Focus on Asset Allocation Chapter Title: Focus on Asset Allocation Summary: The chapter highlights the impressive performance of listed properties and SA bonds over the past year. As of the end of July, listed properties have seen an increase of 28.5%, with an additional 7-8% gain in August. The SA bonds have shown a significant return of 15.6% over the last year, indicating a strong recovery in these investment areas. Even SA cash has reported an 8% return, underscoring the positive trends in asset allocation.
• 57:00 - 72:00: Panel Discussion: Politics and Investment Outlook The chapter focuses on a panel discussion about politics and investment outlook, highlighting a significant return on investment over the past 12 months, making it one of the best-performing major asset classes in RAND terms. It also references the Nate invest range's successful performance over two and a half years since its launch, benefiting from over a decade of model portfolio management.
• 72:00 - 83:00: Challenges in Retirement Planning The chapter discusses the recent performance of a flexible income model in retirement planning, highlighting a 10.1% return over nearly a three-year period. The success is attributed to leveraging longer duration opportunities in the market, aided by management strategies from firms like Vio. Further discussions on attribution are mentioned.
• 83:00 - 93:00: Risk Profiling in Financial Advisory The chapter discusses risk profiling in financial advisory, specifically focusing on different portfolio types and their performance metrics. It mentions the stable growth portfolio, characterized by a maximum of 40% equity, which has shown a return of 11.2%, outperforming the average low equity fund as measured by Assa and surpassing the CPI plus 2.23% hurdle rate. Additionally, the moderate growth portfolio is discussed, which is a typical medium equity portfolio with a maximum of 60% equity, noted for its strong performance.
• 93:00 - 109:00: Asset Management Strategies for Retirement The chapter discusses asset management strategies for retirement, focusing on high-growth and flexible growth investment portfolios. The high growth portfolio, with a maximum equity allocation of 75%, is compared to popular funds like the Alen Gray Balance Fund and Coronation Balance Plus Portfolio, noting that they share similar investment categories. It highlights exposure to top managers within these solutions. Additionally, the flexible growth portfolio is noted as a successful strategy within the discussed range.
• 109:00 - 118:00: Living Annuities and Client Solutions The chapter titled 'Living Annuities and Client Solutions' discusses the optimization model, which currently has a maximum offshore exposure of around 60%. Equity exposure within the model ranges between 80% and 85%, sometimes exceeding that if managers are positive on equities. Over the last two years, the model has generated an impressive return of approximately 15%, outperforming peers.
• 118:00 - 126:00: Closing Remarks and Next Steps The chapter 'Closing Remarks and Next Steps' focuses on the successful implementation of solutions ahead of CPI's long-term objectives. The speaker highlights the strategic decisions that have contributed to this success, particularly the emphasis on being overweight in both local and global equity and SF bonds. These strategies have set the organization apart from its industry peers.

Webinar: A New Dawn Webinar | INN8 Invest Transcription

• 00:00 - 00:30 [Music] good morning good morning thank you for joining us today to today's in election results but we didn't know the outcome or indeed the consequences
• 00:30 - 01:00 it's the first time in 30 years that thec has lost its majority and while some say this is a fantastic development others say it is ushered in more uncertainty what is clear is that we have a coalition government with the Grand and impressive title of government of national Unity we don't know if there is Unity or if it's just parties fighting to get along more importantly what does that mean for the South African economy for investment assets in South Africa and for both individual clients and their advisers we're going to try to tackle those issues today over
• 01:00 - 01:30 the next 90 minutes or so and we have a great lineup for you with portfolio Managers from Alan Gray from bachal capital and from lauran capital a huge benefit of in invest being one of South Africa's leading dfms is that we can call on such large investment managers and ask them to share their views with us and with you we'll be hearing from them and we'll also have an interactive discussion afterwards with real financial advisers involving actual advisers in the discussion is something that's often missing and we're happy to bring that to you today first however
• 01:30 - 02:00 we're going to hear from Rico fenter joint head of portfolio management at innate invest he'll give us an update on performance and the direction of the model portfolios managed by inate invest please let's make this interactive there is a chat function where you can add in your questions and if we have time of course we will get to them this webinar is for you so please don't be shy Rico over to you excellent thanks and and welcome
• 02:00 - 02:30 everyone uh the part my brief part of the presentation this morning is really just going through performance um and then a very high level overview in terms of our outlook for for the market and and the model portfolios but an an important theme for us currently in across the the N Solutions is really don't miss the boat on the local opportunities and I think throughout the last year especially we've been very well positioned to take uh take these local local opportunities uh in the
• 02:30 - 03:00 market now performance- wise um before I provide the performance a bit of a just providing some backdrop here if we look at the 12-month performance of the major asset classes Global equities 18.8% so it's been a very good 12-month period for for Global equities uh Global bonds lesso at 5.4% return over the last 12 months and sa Equity a welcome recovery that we've seen this year and over the last 12 months now post in 10% return
• 03:00 - 03:30 the place to have been the last 12 months ESS listed property up 28.5% till the end of of July and I just had a look this morning another seven or 8% uh return for S listed property so far uh in in August so it's been a phenomenal uh recovery for for for the listed property Market sa bonds a welcome return 15.6% over the last year and sa cash believe or not at an 8 and a
• 03:30 - 04:00 half% return one of the worst performing asset classes or major asset classes so really really good 12month period for for the major asset classes in Ran terms now if we look at the the performance of of the Nate invest range um I'm pleased to say it's been a very successful uh two and a half years since since we've launched the product range we've obviously been managing model portfolios for over 10 years uh but this range since launched done has done exception
• 04:00 - 04:30 well so I'm going to focus on the 2-year period this is the um not a back tested track record actual returns uh since launch and as I mentioned we we nearing our three-year track record uh but 10.1% return from the flexible income model a very good return for us and and us really taking benefit of some of the longer duration opportunities in the markets through manages like like Vio that's helped us a lot in this space and we'll chat a bit bit more about the attri ution in the
• 04:30 - 05:00 next slides the stable growth portfolio which is the the low Equity type of solution maximum 40% equity in the solution 11.2% return well ahead of the the average uh low Equity Fund in the industry as measured by the Assa appears also well ahead of the CPI plus 223 hurdle or real return hurdle we set the portfolio the moderate growth portfolio typical medium Equity portfolio maximum 60% Equity also very good performance uh
• 05:00 - 05:30 in our opinion at at 11.6% the high growth portfolio that's your high Equity portfolio maximum 75% sits in the same category as all the the popular funds like the alen gray balance fund uh cor coronation balance plat plus portfolio Etc and obviously we've got exposure to many of these top managers uh in in the solution as well and then the flexible growth portfolio has been a big success story for for our range uh
• 05:30 - 06:00 the solutions got maximum um exposure to Offshore in terms of our optimization model currently sits at around 60% offshore quite a high Equity exposure in the range of 80 to 85 sometimes even a little bit more Equity if the managers are really positive on on equities and a phenomenal almost 15% return perom over the last uh uh two years overall if you compare two peers uh beating pi across
• 06:00 - 06:30 all the solutions well ahead of the CPI objectives bearing in mind CPI objectives are longer term objectives but that's it still tracking those very well uh at the moment if I just look at why have we been so successful in in in the solutions especially versus our our industry fears we've been overweight Equity um and that's local and and Global Equity that's really helped us a lot uh overweight SF bonds and and we've
• 06:30 - 07:00 become more so over the last 12 12 months and a lot of the underlying managers we use have also become more bullish on bond so that collaboration between us and the underlying managers working very well as always we are very critical of ourselves always trying to improve what we do and um do an autopsy always even if we outperform to see what what could we have done better and what we could have done better is included a bit more property uh across the solutions yes we we held some property
• 07:00 - 07:30 but given that big outperformance a bit more would have would have would have helped looking at some of the the key managers that that performed well and obviously this is a short list uh of of managers I just wanted to highlight key key key um attributions there are obviously quite a few other managers we we apply across uh or use across the solution B mentioned in the income space their High duration strategy working very well lauriam and buter two of the managers you would have come to know
• 07:30 - 08:00 know very well that we use across the solutions doing very well for us on the SA stock selection and both of these managers being overweight s bonds a winning strategy the last 12 months the global flexible feeder fund the stand up multi manager one we we've been using uh part of our our our team's offshore uh product doing very well overweight offshore Equity doing well for us there and then as I mentioned in the previous slide we always like to look at some of
• 08:00 - 08:30 the managers that didn't quite meet our expectations for the year and they are often good reasons so mg and 91 mg has been invested in more the value type of stock so didn't s in cap Tech as an example but preferred the likes of an Absa that didn't work out uh in terms of their performance and 91 opportunity has been has been an underperformer compared to some of our other uh funds used and for 91 is really just underperforming on their offshore uh equity component we
• 08:30 - 09:00 know 91 is a high quality manager and they've preferred to stay away from some of these higher Magnificent Seven type of stocks preferred a few select ones like Microsoft and that underway to some of these stocks uh has resulted in them underperforming on their offshore allocation uh now this is exactly what we expect from some of the managers we use we don't uh blend managers that all have the same strategy and and and and objectives and n one is an example
• 09:00 - 09:30 that's a manager that focuses more on the downside um that's exactly what we expect from from this manager in a period when markets rally quite hard and higher price stocks uh perform well uh one one thing I wanted to touch on we we like uh AI And discussing AI often and you would have known from the our webinars over the years we we quite positive on AI and we remain positive on AI uh the question that that uh is
• 09:30 - 10:00 currently out in the market and maybe less now than compared to a month ago is is AI bubble or once in a lifetime opportunity now we think uh it's a once in a lifetime opportunity we think current companies um that use AI the likes of the Microsoft Googles Amazon Etc these are are very big established firms especially in the tech space we do not think these firms uh have got the same risk as the as companies in the
• 10:00 - 10:30 tech during the tech bubble those were a lot of these IPOs Fly by Night type of companies with massive valuations we don't think that's a current environment we think Ai and technology in general is broad-based transformative is a broad-based transformative technology and as you can see on the slide on the right I just used a few key key Industries where a got a big impact and it's going to continue to have bigger impacts in Futures in the next few years and next few days decade so overall why
• 10:30 - 11:00 we should expect volatility technology is a volatile sector compared to some of the other more stable type of sector so expect draw Downs um but in our opinion an opportunity not to be missed now what's our general Outlook R Cuts highly likely we've been positioned for R cuts for a while now it's finally starting to come through through for us um but in anticipation we've performed fairly well as the market areed anticip fighting it
• 11:00 - 11:30 we think there's a bit left in the tank for performance and and we're quite positive on sa equities and sa bonds regardless of the strong rally we've we've we've seen the S Bond deal is still very juicy uh if inflation in South Africa can't be contained to that five Max 6% range we can still get reasonably good real returns from sa bonds Global Equity markets um less easy to call in our opinion we've got a very strong offshore capability with a 25
• 11:30 - 12:00 top performing track record and we think active management is going to be key in the global space especially given uh in selecting these tech stocks and while we've been in Tech and we've been fairly positive on technology we've made the decision to Inc margin increase our technology exposure uh even further uh going forward uh so do expect to see a little bit more Tech exposure in the portfolios especially on the offshore side uh going forward and we think that's really the place to be over the
• 12:00 - 12:30 next 5 to 10 years and what need to get in there now in terms of risk for our Outlook there are various risk we monitoring on a daily basis dup political risk Andrew mentioned the GMU is something we monitoring closely Global rate growth uh will some countries being pushed into recessions uh there will be risk for that that we need to look out for us elections we're not positioning for a certain outcome yet but a lot of the managers in the portfolios are already thinking about that and how they'll position the
• 12:30 - 13:00 portfolios still too close to call and a big talking point at the moment is AI regulation something we're really close to uh see how that will play out and if it's in the short term potentially a speed bump for some of the AI uh link companies and and their their earnings so that's our general View and to summarize it volatility creates a lot of opportunities in our opinion and we we quite optimistic uh uh for the next few years for portfolio return so thanks a
• 13:00 - 13:30 lot Andrew and enjoy the rest of of the the webinar thank you thanks Rico I appreciate that having clear and straightforward feedback on what hasn't hasn't worked is really important for our investors so thank you for doing that and I'm glad to see the performance has been strong the next part of today's webinar is a live panel discussion between the three asset managers I mentioned earlier alvan gray Bachelor capital and lauran capital all three of these feature within the inate invest model port portfolios and they're all
• 13:30 - 14:00 there having earned their place because they each bring something unique to the table so they're going to give us a quick overview of their firms one by one just to set the scene and then we'll start the discussion so let's begin with jiten P from Allan gray uh he joined the firm in 2013 as an analyst and is today a portfolio manager looking after portions of the equity and domestic balance mandates and he not only has two degrees but is also a chartered accountant and holds the CFA designation Jen over to you hi good morning um my name is Jan P I'm
• 14:00 - 14:30 one of the portfolio managers here at at alen gry as Andrews uh mentioned very kindly uh just a a few stats on our group um for those that may not be familiar with us so we're a privately owned investment manager we just celebrated our 50th Anniversary late uh last year um at the end of July we've got 630 billion uh Rand in assets under management and we're affiliated with our sister company being the orus group who manage the majority of our offshore um
• 14:30 - 15:00 assets for our clients and they have a further $40 billion in assets under management um the investment team comprises just under 30 people um but we also have a very big Administration and retail business so our total employee kind of count is is just over 1,400 people um moving to the next slide um the this slide one back sorry there we go um this slide just shows the
• 15:00 - 15:30 senior investment team um across kind of all of our mandates um the the portfolio managers that that manage them respectively um and what I've highlighted in red um those are the portfolio managers that manage the domestic balanced or essay balanced mandate that we'll be talking about today um on to the next slide um just briefly in terms of our investment philosophy um you know I would classify
• 15:30 - 16:00 Alan gray as a valuation driven bottomup contrarian stock picker and and you know very simplistically you know we do Deep dive research to try and figure out you know what is the the true value of an asset what is the true value of a stock um we aim to then buy that stock when it's trading below its intrinsic value and naturally we we aim to sell it when it's trading above its intrinsic value and you know Ben Graham's famous the stock market is a voting I think that all holds true today um you often get
• 16:00 - 16:30 kind of swings and roundabouts uh along the kind of fair value Spectrum I guess what makes us different is to my mind two things the first thing is you know we we try to use a business person hat when evaluating companies you know kicking the tires um applying realistic assumptions and actually saying what would a business person pay for this business rather than than a than a financial engineer and the second part of of what I think makes us different is that the next slide um and that's how we
• 16:30 - 17:00 Define risk you know to us risk isn't um underperforming a benchmark it's the risk of permanent Capital loss and this slide I think captures that quite nicely because what I've done is I've shown you um monthly returns since 2000 across our three kind of Flagship um retail funds and I've segmented them in terms of when the market is up and then when the market is down and the thing I take away from this is actually when the markets are up you know if we're being honest we'll do well to keep up but where we
• 17:00 - 17:30 add most of our most of our value is when markets are down so that middle kind of bucket um and that's because we we tend to protect Capital better um and as a result through the cycle um that's resulted in net art performance across stable balanced and Equity um mandates um right last slide from me um sorry second to last slide this is just performance of the sa balance mandate and I've taken the institutional mandate here just given that we have a much longer track record on this uh pleasing
• 17:30 - 18:00 our performance over many long kind of term time periods uh particularly over three years which you know all else equal we would hope to deliver art performance um over any kind of three-year rolling period um last slide is is just how we're positioned at the end of July and this is again for the sa balanced mandate um what you would notice in the red pie charts um most of our shares um are foreign I have a tilt to kind of foreign businesses um within
• 18:00 - 18:30 the darker red pie um the sa kind of domestic facing businesses that we own they they tend to be companies that we think have a self-help story and then within the kind of gray and black kind of pie charts our preference in fixed income is for cash over sa long bonds um we think 2024 is a year of heightened risk and we're still quite worried on South Africa but we can get into that in the discussion thank you
• 18:30 - 19:00 thanks very much Jen I appreciate that I'd now like to introduce Warren Riley who's joining us from Bachelor Capital uh he joined in 2016 after more than a decade of experience in the investment industry with roles at Allen gray Cadence's capital and his head of Investments at a private wealth firm Warren is the co-portfolio manager for both The Bachelor flexible funds and the Equity Funds Warren welcome thanks for the the introduction Andrew thanks very much pleasure I think we should have some some slides um popping up
• 19:00 - 19:30 now yeah there we go perfect we can we can start on this slide it's the the introduction so just a a brief intro to to Bachelor Capital the business was founded over 20 years ago in 2004 so um as a hedge fund management company I mean th those roots still are seen today across all our our funds we manage we we're very focused Focus business um running Equity Centric funds
• 19:30 - 20:00 or with a a consistent investment process we'll see the funds we manage um have a strong focus on Capital preservation and um limiting downside risk and I I'll show you some slides after this to give you an idea of how that our process works its way into our performance um we like to see ourselves as unconstrained and uh when we say that when we in terms of our investment style we like to who um participate in in
• 20:00 - 20:30 markets to you know is value is working or growth's working we think we can participate in in all different styles in the market and if you look at the the business size today at 15 billion under management we we think we are have access to a wider opportunity sets on the on the on the JC which we think the backdrop today is is is quite a distinct Advantage um we can move on to the next slide you look at our investment philosophy um we use a a bottom up fundamental approach and we combine this
• 20:30 - 21:00 with a top- down macro overlay this is to arrive at the firstly the equity selection in the funds and then obviously overlay that with the asset allocation we look our objective with the the capital preservation funds we run is to generate returns in excess of inflation while placing a premium protecting investor capital and practically in implementing this we've seen that the funds keep Pace with markets in the good times but protect capital and pairs of Market stress and if you take those two and add them
• 21:00 - 21:30 together you generally will lead to outperformance of equity markets over the medium to long term but at lower risk and um if we move to the next slide a good example of of this is the the track record of the bachelor flexible fund which has um now got a 14-year track record started in 2010 um the funds compounded at 14% per anom net of fees so it's nicely ahead of the market at lower risk and I think importantly again it's Benchmark of inflation plus
• 21:30 - 22:00 4% has added strong real returns and what I've done is circled some periods where the fund has outperformed and what you'll see generally speaking it's been um during periods of when the market has been weak or there's been significant volatility and that's where the funds added its um its out performance um on to the next slide which is the uh fund we will be focused on today which is included in the innate model portfolio is the bachelor essay flexible fund it follows the exact same investment
• 22:00 - 22:30 process as our flexible fund but focused on domestic assets and it's approaching a oneyear track record um close to 16 and a half% um return since Inception um nicely ahead of inflation and in line with the AllShare index which is up 177% over that period I think doing the its job um sticking uh in line with the market but at lower risk and so we're quite happy with the the start the funders had and we can talk more about the funds positioning when we get into
• 22:30 - 23:00 the the panel now thank you very much thanks Warren I appreciate that and lastly I'd like to introduce Matthew ponet from laurum Capital he joined the firm in 2013 and previously worked with deoe in both Johannesburg and San Francisco he's the portfolio manager of the laurum sa hedge funds and has been holding that since 2019 is also like a lot of people in the industry a chartered accountant and a CFA Charter holder Matthew welcome to the call thank you
• 23:00 - 23:30 very much Andrew and good morning to uh all the listeners um so quick intro to lauram Capital um we started in 2008 with two x Deutsche Bank Executives maray Winkler and Gavin forberg um firm actually started a few weeks before the lemman crisis so a very interesting time to be born into financial markets um but be coming up to 16 years now um in the
• 23:30 - 24:00 industry the way we would describe ourselves is that we're a big small manager and what we mean by that is you know in terms of our team and our research depth and experience you know we can very much compete with any large bulge bracket manager in the South African context um 19 investment professionals on average uh 20 years experience per individual so you know we've been through various Cycles um you know various macro ups and downs so very
• 24:00 - 24:30 much you know exceptional depth in terms of our research effort but we still very much atique in terms of our mindset and our operational structure incredibly flat Nimble opportunistic um 56 billion uh Rand in assets but only about 12 and a half billion in multi-asset Solutions so very Nimble and and um we've kind of adopted the sort of hedge fund mindset that we started out with you know our first Fund in 2008 was a long short
• 24:30 - 25:00 hedge fund that was the Genesis of the firm we very much retain the same kind of philosophy around having fundamental valuation as our foundation but adding on to that a lot of trading activity and special situation investing so in 2013 uh we migrated into the long only space with our flexible fund uh which we'll slow show on the next slide um with thought very much that was kind of the a
• 25:00 - 25:30 very similar mandate where we could kind of take that hedge fund philosophy and apply it into the longer universe and as you can see that fund is at a very good track record uh beating kind of you know quite substantially the flexible sector average now Benchmark of cpri plus 5 um if you look at this kind of in a broader context um it beats all balanced funds uh it ranks third in its category since Inception and beats all bit one General equity fund over the same uh time period
• 25:30 - 26:00 about a year ago we started the sa flexible fund which will be the the Mandate be talking about this morning um but I think what's important if we go to the next slide is how you also manage the risk again having that kind of hedge fund mindset around protecting downside but trying to capture upside this kind of Compares on a risk return basis the laan flexible fund with other sa asset classes and as you can see you know per unit of risk or
• 26:00 - 26:30 volatility a much higher return and that's kind of how we very much see our value add in a portfolio context the next slide is our onee track record for the SI flexible fund it's early days um of course but we very much kind of you know have transported the same philosophy that we've applied to the flexible fund to this mandate but just kind of concentrating on sa asset classes and you know very much our home base of South Africa and again you know
• 26:30 - 27:00 over one year um which is a subst Inception number you know close to 20% return again very much I'm out competing The Benchmark and and our objectives so Andrew I'll stop there and we can uh we can head into Q&A thank you thanks Matthew I appreciate that uh and I'd like to invite Warren uh in 10 to come back on as well now I have a number of questions for the panel but again if there are any questions or comments from the audience please put them in the Q&A and we'll try to get to
• 27:00 - 27:30 them so let's start with politics get in the the title of today's session let's start with the government of national Unity um Jan I'm gonna ask you the first question you heard Rico outlining our house views on the gnu but what are your headline thoughts and its impact on sa Inc sure um you know for us look I think undoubtly the G the gnu is one of the better outcomes that that could have happened um you know for us we've thought about it in terms of a balance
• 27:30 - 28:00 of probability you know if you think about what the election posed you know we think the gnu has removed some of the left tail very negative risk that that South Africa faced probably before the election and maybe just after the initial results were coming out of the election um you know especially if we have kind of a more socialist leaning Alliance that that kind of emerged um and don't get me wrong it certainly increased the probability of a right tail favorable outcome you know but for us you know there's still lots of
• 28:00 - 28:30 headwinds that South Africa is facing in terms of its growth and we think unfortunately you know the gnu itself um isn't necessarily in control of you know if you think about the slowdown in China and South Africa still being a resource economy um if you think of while at least it looks like some progress is made with the S soes you know trans for example still faces quite significant challenges um the other thing with the gnu is you know even for the things that you know government is directly
• 28:30 - 29:00 responsible for we've seen at local government level you know it hasn't coalitions haven't been the smoothest smoothest thing in the world so what I would say is sure it's definitely a positive outcome but you know it hasn't kind of changed our minds in terms of going all in on sa risk just yet okay well there does seem to be a lot of positive response and enthusiasm about it um similar to when President Raposa first became the president people are talking about loadshedding ending people are talking things finally going the right way I got an announcement uh
• 29:00 - 29:30 over the weekend about how uh DHA is finally starting to clear some of the backlogs on Visa applications so is is this optimism misplaced um Warren why don't I ask you on your view for that yeah thanks I think as a starting point if you look at the roria period from December 2017 and I think it lasted probably a year there was very high expectations um and when when Raposa came in the the backdrop was very different to
• 29:30 - 30:00 today um there was no reform in place I think the market underestimated the amount of damage that was done to the economy under State capture um and what followed was a period of very weak growth and um really damage control it can't be any different this time around so what you're seeing with the gnu is you're coming into a period where we think the macro backdrop is more supportive a global macro backdrop for merging markets we've got US inflation coming down interest rates beginning to
• 30:00 - 30:30 come down globally and um a weaker dollar so quite supportive for merging markets as a starting point and then South Africa having its own self-help story um load shedding now abating after very serious levels of load shedding in the last 18 months rates coming down here inflation under control so we think in South Africa inflation will print 4% by the um final quarter of this year so we think a quite a good backdrop for rate cuts and um the economy probably
• 30:30 - 31:00 moving towards a 2% growth rate purely from base effects into into next year and then the potential for um these reform initiatives to continue and I think under the gnu what's been quite positive is that we've seen a complete Buy in from the various parties into the reform agenda which is Operation vand Lea continuation and potential acceleration of this um so I think our view right now is we we're seeing a a cyclical uplifting growth in in South
• 31:00 - 31:30 Africa in the short term but the potential to move to structural growth and I think when you then you look at the equity valuations and positioning no one is really positioned for that and I think that's the exciting prospect for us that this time is quite a lot different to what we saw a couple of years ago do you think that the government is the the force that's going to be driving the that structural growth and that grow going forward given that we know the government doesn't have a lot of money the private sector is holding tons of cash some people say it's over one trillion Rand which can be
• 31:30 - 32:00 deployed but hasn't been uh do you think the private sector will be stepping in and making the difference here is that where the growth is going to be coming from and please everyone else Jen Matthew please jump in if you have views on this I I'll I'll provide a quick answer that Matthew jump jump in here but um no I think it's going to be the private sector I think if you look at capex plan 70% of that is coming from the private sector um is Buy in from the private sector and I think the the state's role here is just to provide the infrastructure and and the basic services and get that working and the
• 32:00 - 32:30 private sector will take over and do the rest so I think um there will be an element of investment from from government and we've seen some of those early plans um and just getting the state own entities working again and investing will also assist but it's going to be a private sector L growth here most certainly and I I'll let anything yeah I think the energy reforms have kind of been a great blueprint of what the private sector can do and how quickly it can do it um as soon as you
• 32:30 - 33:00 create the enabling um regulatory environment um it kind of proves there's there's a lot of number one Goodwill from the private sector number two there's a lot of economic rationale so if you just think of kind of renewable energy um you've seen the REITs for example the property companies spend significant amount of CAPIC on their own power generation and the IR is attached to that in the High Teens so it's not only a necessity but it's also very good
• 33:00 - 33:30 Capital allocation so as soon as you create kind of the the blueprint for it private Capital both locally but more importantly offshore you know there's been a huge amount of money raised into infrastructure funds uh fixed asset funds long-term capital that's trying to find a very good return you create an enabling environment you attract that Capital the big test coat will be transet how we deal with that and how we deal with open access to the rail um and to the port terminals is early traction there it's highly complex but that will
• 33:30 - 34:00 be I think the next kind of big leap but what's been great is there's been a shift in the anc's mindset around State driven economic growth versus collaboration with the private sector I kind of feel like that cats out the bag now um with the with the energy reform so we we're positive on that okay thank you and but let me let me reframe the question slightly um when I first came to South Africa five years ago everyone told me that the economy was suffering largely because of State capture and poor governance within the country now that seems to have been
• 34:00 - 34:30 resolved or at least heading in the right direction so what are the biggest risks that you each see facing South Africa INC now um I I'll I'll start you know I guess gnu specific you know I think for me the G the gnu is you know it's it's an enabler of sentiment right people you know Capital will follow um good policy Capital will follow good execution you know I think we've got that initial bump now from the sentiment at least where
• 34:30 - 35:00 people are thinking you know I guess expectations were very low so it's it's a very low base but you know people are are somewhat more optimistic I think the next step that we'll need to follow now is is execution and that execution leading to kind of tangible growth in the country don't get me wrong you know I think if we return to kind of sustainable 2% real economic growth um geez even 3 or 4% you know that I think that would be amazing for the companies that operate here it would be amazing for our stock market um it would be
• 35:00 - 35:30 amazing for General employment in the country you know it would do a lot of things I think the thing that we're worried about is um you know we're I mentioned this earlier we're still predominantly a resourc driven economy both first and second derivative um and when you've got you know the likes of let's say a China chin let's say China and their property sector slowing down you know when when when you've got a single country that consumes more than 50% of most industrial Commodities and South Africa is so dependent on the
• 35:30 - 36:00 prices of those industrial Commodities um you know it's it's it's hard um it's it's hard to get overly positive at least from our side only because of the kind of global ta Global headwinds that I think could be coming for us okay thanks to 10 Matthew I think that's right I think our greatest risk is external um you know some ways the the backdrop externally is very supportive right now in terms of
• 36:00 - 36:30 monetary policy so Warren referenced it earlier uh dollar weakness that's typically good for Commodities um slow inflation lower rates you know a lot of the kind of rally that you seen in s Inc actually can be explained from a cyclical turn rather than a structural turn um but in terms of GDP growth and kind of the driver of commodity driver that is the risk around China um we becoming increasingly frustrated by the lack of policy response by the Chinese
• 36:30 - 37:00 central government um you know the market is kind of screaming out for stimulus that's screaming out for an increase in consumption but but there isn't kind of the execution at a at a central government level um they're sort of still doing austerity um confidence around the consumer still incredibly low and that kind of FS 3 to GDP grow so agree with Jen China and and its um lack of policy response remains a s the number one risk in terms of uh you know what we seeing
• 37:00 - 37:30 so in a strange way I don't want to put words in your mouth are are we saying are you saying that many sa assets being commodity-driven are more dependent on Chinese government policy than sa government policy no it's just it's one you know things are never as simple as that there's many different factors we're on incredibly low base so fixing things like trans net energy can definitely boost our GDP growth with China being a lackluster backdrop the risk is if China falls into recession if it you know if it really
• 37:30 - 38:00 kind of enters into a sort of Japan um last decade which which is is a risk right now that would just be a headwind to our growth so if you're thinking of kind of GDP maybe going from less than one to two maybe to three what kind of stops that progressing is potentially a very very slow GDP backdrop to due to China and we're less worried about us growth that looks pretty healthy it's more China that's that's kind of the risk metric here waren anything to add yeah I agree with
• 38:00 - 38:30 with both of those views I think the the one thing we've been thinking about is so you fix the network Industries in South Africa get transet right and and you get escom right and so your power sorted and your your Logistics is sorted those are are big drivers but what still worries us is the kind of local governments so the Western capes operating and it's fantastic to see every day you're seeing headlines around new investment in the Western Cape um the unemployment rates 21% 22% in the
• 38:30 - 39:00 Western Cape the rest of the countes at 36 I think on average but the big economic drivers in South Africa are the king and qual economies they they basically combined are double the size of the Western Cape and there's still significant issues in local government there around Service delivery and execution and implementing some of these turnarounds so I think that's something to watch it's it's it's uh it's high on the agenda of the president's office to to focus on that on phase two now of
• 39:00 - 39:30 reforms but these things will take time so we'll get the the bigger things working but when you go down to the micro level that's important I think that's that's something that you want to start seeing Improvement on that's critical okay and while while I have you speaking Warren there's a question from the audience saying and this is in light of dependence on China shouldn't essay be looking at other trading options over a wider area of the World Market rather than being subject to Major powers and their internal
• 39:30 - 40:00 issues yeah I I think that's easier said than done I mean given the the resource heaviness of our economy um I think one bright spot is the agriculture sector if you look at um Citrus market and the recent moves we've had to open up key markets there's a lot of growth there but it's it's unfortunately small relative to to the to the um the metals market so I think that is something that over time can be improved upon and if you look at our our larger miners they
• 40:00 - 40:30 are increasingly selling more to the likes of India and other faster growing developing markets but China is such a big market for these these Commodities and consumes such a large proportion that it's very hard to detach ourselves from it and I mean it's probably important that yes our our stock market has a heavy weighting to Diversified resources npos process and and kind of China link equities but you know the domestic economy itself and consumption so on these things can still work if China is s in my view I think the base
• 40:30 - 41:00 is so low that there's still opportunity for growth even if China is still kind of bumbling along the bottom okay thank you uh one of the things that obviously is going to come up and I know we have to address it is interest rates it's always been coming up ever since they started to be increased uh there are large expectations that the FED is going to be cutting rates in September do we think that sarb is going to cut advance of them will it be after what is the Quantum what are your thoughts around
• 41:00 - 41:30 that Matthew look look um L and theab I think has a naturally hawkish stance and I think they will wait for the FED um as I say that that fed September cut I think is all but cemented he pretty much said that at Jackson Hall um so we kind of expect cuts the beginning September but keep in mind what the sa is trying to do they want to move the inflation Target from effectively 3 to six so four and a
• 41:30 - 42:00 half let's call it down to three so they do want to cement the inflation expectation in the sa consumer down to three so we don't expect um significant loosening but you know we kind of agree with the Ford rate market right now which is pricing in between sort of 125 to 150 basis points of cuts over the next 12 months in the South African context we kind of think that sounds realistic you our inflation prints are looking are looking pretty positive and
• 42:00 - 42:30 it's interesting when you do the mass of that I mean if you just take the mortgage market we've done some estimates on what a 100 basis point does in terms of affordability if if you go down from you know Prime of 11.75 and you drop that by 100 basis points our view is that on a per anom basis that puts about 14 billion Rand back into sa consumer wallets um and that money typically is spent um or it's used to reduce debt further which helps Bank credit losses
• 42:30 - 43:00 so it's quite a you know when you put the numbers into rans and sense it's quite a strong driver of consumption in our economy and we we're still very much a consumer-driven economy as opposed to a fixed investment driven economy so small rate Cuts do make a big difference to um to the outlook here yeah um I I'll talk a little bit to the US you know to Matthew's point you know it's I think Great Cuts this year in the US are pretty much baked in um
• 43:00 - 43:30 you know we've been thinking about something a little bit more longer term and and we' actually you know we're worried that the kind of structural inflation problem in the US isn't fully solved yet and you know if you look at you know forward rate markets it looks like people are largely pricing in a return to you know to kind of or at least in terms of break evens you know a return to kind of 2% inflation in the US that you know that was roughly the average they enjoyed since since the GFC you know we're worried that actually if
• 43:30 - 44:00 you look at Financial conditions today you know they're fundamentally different versus that very low and stable period of low inflation that that the US enjoyed you know the we would argue some of the demographic Tailwinds are are no longer there um there's a lot more debt in the system um you know the the defense spend which is naturally unproductive and in fact destroys things you know um we feel there quite a lot of things in the US system that should result in higher than 2% inflation for
• 44:00 - 44:30 longer and if really that does come to pass and you know the FED is serious about maintaining that 2% Target you know they're going to have to react in terms of interest rates you know whether that means kind of fewer Cuts or I guess it'll depend where we are in terms of the economic cycle but you know for us um we're far more worried about a hard type Landing in the US that's needed to cool inflation um rather than than now Financial conditions look really good and you're cutting rates into fairly
• 44:30 - 45:00 Good Financial conditions okay well after this expected rate cut in September we have the elections in November we have to talk with those one of the audience questions is what is the ideal scenario for us elections in terms of it impact on sou African market and your funds think of it that way what is the ideal result for you yeah um okay maybe I'll start um jeez I'm not sure actually and I say
• 45:00 - 45:30 this because you know both presidents or both candidates have policies that I would argue are somewhat concerning um and I said and what not concerning South Africa specific um even though probably a Trump prescy would be kind of less favorable for South Africa given that we're aligning we we seem to be aligning ourselves with with the East rather than the West um but you just in terms of kind of global kind of impact you know Trump is famously the president of
• 45:30 - 46:00 tariffs right um you know if you think about if that results in a high cost of goods for the US um you know what what does that mean for inflation um you know he's also going to cut taxes what does that mean for the US's finances which I would argue are already you know somewhat irresponsible you know conversely a Democrat Kamala is going to continue spending which is not also not good for kind of you know f deficits so you know either way I I'm worried about
• 46:00 - 46:30 how the US is running its finances but net net you would argue maybe a trump presidency's worse for South Africa specific just given how our politics are aligning globally interesting Matthew Warren same question yeah I can I can add to it a bit there I think similar to to ten I think both candidates and the US have a spending problem if you look at both policies there's no attempt to range in the the deficit spending I mean the market is getting concerned around the
• 46:30 - 47:00 level of debt in the US and the the continued elevated deficits um that's starting to translate into a weaker dollar but I think more importantly how that translates into South Africa I think when you look at our dysfunctional our prior 10 years have been as a country I think we have an opportunity to counter sically grow despite what happens in the US and Global markets purely from kind of fixing what's been broken so do things less bad than what has happened the last 10 years so yes
• 47:00 - 47:30 the whatever happens in the election will most likely have a short-term impact be it on on interest rates and inflation but whatsoever but I think in the over the medium term we can detach ourselves somewhat um purely from just fixing what's been broken on balance I think uh Harris presidency is better um you know Trump is um unpredictable and he's transactional um the point I would make
• 47:30 - 48:00 though is I think us monetary policy would Trump any political change so we often think the Central Bank Governor is probably more important than the president in terms of what drives US economic growth and financial conditions which impacts South Africa okay that's that's fair enough uh and in terms of driving South Africa I want to Pivot a little bit now and talk about your asset allocations and valuations because you take all this information about the politics and the gnu but you have to make real decisions
• 48:00 - 48:30 on what you're investing in so Matthew but while you're talking let me ask you are you finding more value in sa Inc or in Rand Hedges Yeah by large in sa Inc um and kind of one asset class which we've um held in relatively large size uh throughout the year we've trimmed a bit recently was South African nominal long duration bonds um there was a great return asymmetry in those instruments when you know they were 11 12% yielding
• 48:30 - 49:00 um you know any compression in in yields gives you about an extra 7% per 100 basis point drop in the yield you add that to the coupon you were kind of looking at High teen return Potential from from those bonds which they've which they've actually subsequently achieved when you look at the downside of that you know you you you sort of take that 700 um 700 basis point or 7% drop in Capital against that coupon of 12 a half your downside was still positive in terms of
• 49:00 - 49:30 uh single digit underperforming cash but still positive so great return asymmetry from from those instruments we also think they are in a way self-fulfilling and reflexive so the lower sa financing rates go the better our fiscal position we've long argued you know South Africa doesn't necessarily have a primary balance issue um if you exclude interest payments are revenue on our expenses are pretty well matched our problem was that
• 49:30 - 50:00 we've had low nominal growth and we've had very high nominal interest rates and if those are out of balance you can't um you can't stabilize your debt to GDP ratio but if you get lower funding costs through lower bond yields that self-corrects to a large extent and it creates a positive cycle your fiscal position looks better which means rates low are lower the lower rates means the fiscal position looks better and so on when you couple that structural reform that starts to lift that nomal GDP growth leg um that's another addition to
• 50:00 - 50:30 that um equation so on balance those those those bonds looked uh pretty interesting they're now yielding about 10 and a half if you break that up into kind of the two components the inflation expectation embedded in those bonds we call it break even inflation it's still about 5 and a half% now that's above again where the subab is targeting and where we are right now um and the real yield is still 5% and that is still very much an elevated level pre- Nate we were
• 50:30 - 51:00 closer to 2 3 to% and those real yields have not actually changed much post the gnu so when you start looking at the building blocks of what's embedded into the bond yields currently it's actually still quite um a cautious stance that the market is putting on South Africa's fisical position so even at 10 and a half we still think those are a very attractive asset class okay so ESS Inc for lauan uh I need to ask to 10 because when you you were showing your uh fund breakdown earlier it was showing 36%
• 51:00 - 51:30 Rand Hedges so you must have a different view yeah we do um you know for us you know it comes to my earlier views you know South Africa I think if we got conviction that we had you know we were sustainably on a path of two or three even four okay four would be amazing let's say 2 or 3% sustained real GDP growth you know I think we'd be far more positive on sa Inc um I think you know for us we we for for the reasons of outline we struggled to get that conviction so as a result we're finding
• 51:30 - 52:00 far more value today on in the in the Rand Hedges especially with Iran kind of having strengthened a bit since since the the gnu what I would say is you know we're not shunning sa Inc completely you know to my mind sa Inc it's it's it's a stock selection argument so it's you know what come you know selectively what companies do we think have opportunities to improve themselves we call it self-help you know even if economy is slightly weaker than we would have hoped you know can a company like Willies you
• 52:00 - 52:30 know can they do something internally to improve their economics um even if if we're not growing at at GDP plus you know at at kind of real uh at a real 3% um in terms of of the fixed income you know the reason for the kind of cash over long bonds you know we take the point that you know kind of our real long bond yield is one of the highest in the world um but the you know the problem for us to to Matthew's point you know when you've got a very high cost of
• 52:30 - 53:00 funding um it's and naturally kind of a kind of overall deficit you know it requires the the sa government to issue more and more bonds every year um foreigners haven't come back in despite the kind of gnu promise into our bond or Equity markets by and large um and you know so African managers already have quite a lot of sa government bonds so you know who's going to be the marginal buyer of that Bond that's something that really worries us um so you know yes
• 53:00 - 53:30 attractive yield as we stand here but you know if if supply and demand don't match uh the yield is going to have to increase to kind of balance that out um and then we can get over 8% on cash sa cach which again is is higher than four and a half odd percent inflation so you know for for us that's the yeah the the kind of ran Hedges and cash instead of SE long bonds sure when I want to ask you if you a view on that but also if you can just touch on which sectors are exciting you the
• 53:30 - 54:00 most yeah so I won't add to what Matt talked about on the bonds we got a similar view and so you've seen the risk premium in South Africa come down considerably the the whole Bond curves move down about 160 basis points so that's assisted equities and you've seen domestic equities rate essentially as the cost of capitals come down so what we seeing today a lot of the large list uh large cap liquid names have rated to an extent where we would would say that many of them are fairly valued um and
• 54:00 - 54:30 from here you would need an acceleration and earnings growth kind of an economic growth to justify you know a further leg up but where we seeing opportunity and where we've been kind of recycling capital is in in the the market kind of below the top 40 where you're finding very good companies still relatively large market caps which haven't um been caught up in the Euphoria yet and are still trading on low multiples um have good prospects and are are just kind of
• 54:30 - 55:00 ignored by the market given liquidity concerns so I think there's still a lot of opportunity there um in terms of where we're finding them is South African Industrials so businesses which have to to many extent when you look at them suffered through super low growth environments and have had very little Topline growth and we starting to see signs that that might improve and there's significant operating leverage in a lot of these companies and that the cost bases have been managed to the extent so well because youve had no
• 55:00 - 55:30 growth in the country that if you get just a bit of Revenue you start to see quite nice operating leverage down to the to the bottom line and yeah we can go through a couple of names if you if you want to but also some interesting names in for instance the gaming and Leisure Market a business like Southern sun which is um benefiting from inbound travel and tourism I think those as discretionary spend picks up you'll see that translating into to kind of spend in those names which will will lift the top line so I think there's there's
• 55:30 - 56:00 plenty of opportunities still you just got to be selective in where you where you playing yeah it's interesting you mention uh midcaps because there are fewer and fewer large liquid names you mentioned that as well but there are fewer and fewer of them on the stock market you're finding opportunity in the midcap space um is it a concern for you is a concern for any of you that the liquid Market is becoming smaller and that are you finding more opportunities in the midcap or even in the unlisted space yeah there's liquidity is a big concern it's if you look at the value traded on
• 56:00 - 56:30 the JC for um July it was down 16% you're on your August looks to be worse um the the value Traders is on a decline and then when you move out of these top 40 names it really it is concerning there's not much liquidity available so you have to in terms of managing position sizes one has to be quite cautious into you know what size you have in a particular stock so in the midcap space you might be comfortable with a 2% waiting a particular stock which if it was a top 40 stock you might
• 56:30 - 57:00 have a a 4 to 5% waiting just because you actually can't buy the stock it's just not enough value traded in it and I I think what's in addition to that is that we haven't jth mentioned it we haven't seen foreigners come back into our market yet so what does that do to the liquidity equation if you have foreigners coming back in so I think as conditions improve liquidity should improve with that but right now it's the guys are it's a show me story guys are waiting to see Improvement in GDP Improvement in economic Matrix before
• 57:00 - 57:30 they come back in because they've been so burnt with with roria yeah uh just mindful of time time is always the enemy we I have a quick fire round I think you're you're used to doing these sorts of things before so I'm just gonna ask you a question and it'll have one or two two options but please just give me one quick answer uh first thing that comes to mind for obviously uh your your funds and how you position it um let's start with let's say Matthew you have to you have to turn yourself off the mute now so you can answer quickly Global recession or soft
• 57:30 - 58:00 Landing soft Landing soft Landing to 10 s question Global recession okay interesting um Warren you you heard Matthew talking earlier about what H we think the rate cuts are going to be what do you think the saay interest rate will be on December 31st of this year yeah reper rates eight and a half% now I think we most likely be s five basis points lower by your end so seven so seven and three quarters
• 58:00 - 58:30 Matthew same question essay rates December 31st about the same okay Jen are you in agreement um yeah I I I think it'll be less than the US so less than us okay uh a client comes in with one million rant discretionary they can invest in anything they like and they ask you whether she should invest in sa Inc or global tracker Warren The Bachelor sa flexible fund no
• 58:30 - 59:00 of [Laughter] course it's more a question about asset allegation and what they whether there opportunities in in SA or whether there opportunities globally yeah know we still see the opportunities given the backdrop and kind of the change momentum we're seeing here we still think South African domestic equities can give you a very strong returns from you okay um Matthew what stock market do you think will be the best performing in the next 10 years 10
• 59:00 - 59:30 years globally uh the UK probably interesting interesting I haven't heard people mention the UK ever since brexit it hasn't been one of the top mentioned names it has not uh and let's talk uh to 10 a bit of a random one cryptocurrency would you ever have it in your fund um well we can't buy kind of regulations but that's a cop art even if we could no I would um yeah it no I can give you more but
• 59:30 - 60:00 I'll stop at no okay well then the following question for you is over the next 12 months do you see yourself adding more sa Equity or sa bonds um I would say sa equity and I said this because you know we we selectively there are opportunities you know valuations are cheap but um sorry I'm giving you a long answer sa equities okay Warren saay equities or sa bonds what do you think will increase more in your funds in the next 12 months yeah domestic
• 60:00 - 60:30 equities Matthew in absolute terms probably sa equities but we always view these things on a on a risk reward basis so we think equally attractive on that thank you thank you for that listen I would love to ask you more questions I can't believe we've actually already gone through uh 30 minutes of discussion um I want to thank you for joining us today uh clear for everyone in the audience there were some questions which we didn't have a chance to get to I will try to get responses from the asset managers and and circulated if you're
• 60:30 - 61:00 interested uh Matthew Warren to 10 thank you for joining us as always it's been really Illuminating and um nice to hear the views from the asset managers that we include clearly if everyone agreed on everything 100% we wouldn't need to have different managers uh it's really nice that we have smart people who look at the same information but come up with differentiated views um so thank you very much for joining us um I'd like to now move on to the next part of our call thanks you thanks very much sure um so for the next part of the call we're going to be um having a panel
• 61:00 - 61:30 discussion with some advisers I mentioned this at the beginning um so Mr harabi or Sam is going to be chairing that she's from standard Banks investment proposition team that's the team which plans and structures which products and services make it to Market and how they get there so Sam will be moderating the discussion and I'll let her make those introductions and again for people in the audience please feel free to post questions on the Q&A thanks thanks thanks Andrew um hi everyone uh yeah today's discussion um is going to
• 61:30 - 62:00 center around retirement and living in ut Solutions and you know as South Africans we not only have a very low savings rate but the majority of people are actually not prepared to retire either they haven't got enough savings to retire at the age that they wanted to retire at or in their retirement years they're not able to maintain the quality of life and the standard of life that they've um you they've gotten used to over the years now you know you've seen a lot of product product suppliers and
• 62:00 - 62:30 product providers who would come to Market in the last few years to try and address this problem and a lot of the solutions and a lot of the products that have been um taken to to clients center around living annuities um purely because they give the clients a lot of flexibility around the type of draw down rates they they require based on their stage of life and what their financial requirements are at a particular time and give them a lot more say in the kind of Investments that that the client is
• 62:30 - 63:00 exposed to but inherent in this sort of flexible product is a level of of risk and pressure on not only the client but the the advisor in having to make sure that the client um you know that the client's longevity risk is managed and that the client is is not in a position where they outlive their their retirement investment so to discuss this and some of the solutions that um you know advisers have at their dispos proposal I'm going to be joined Again by Rico fenter from inate invest along with
• 63:00 - 63:30 two of your advisor colleagues Thomas BFF um who's a senior member of the Liberty tith force and um antoon swano who is a very respected member in the financial planning industry welcome everyone um Tom andon maybe I'll start with you I mean you know from an advisor perspective when dealing with clients you know the the topic of reti re M and retirement planning is one that can be quite a contentious issue or you know
• 63:30 - 64:00 not all clients have bought into this idea of saving for retirement when is the right time to save for retirement you know do you find in your experience and maybe Tom will start with you do you find that you know planning for retirement and retirement investing is still seen as a gudge purchase by a lot of clients or you know are clients sort of shifting their mindset uh towards retirement investing yeah thanks Sam um yeah I I do think particularly for for many younger clients I think it is a still a grudge
• 64:00 - 64:30 purchase you know I think they younger clients generally have a mindset that you know retirement savings is is more of a a forced obligation than than it is a positive goal so um you know they like to generally spend on the immediate on their immediate needs rather than you know saving for some kind of distant some distant future but certainly for my experience um you know
• 64:30 - 65:00 clients hitting their 40s I think they they have a growing recognition that um you know retirement planning is critical often they realize it a little bit too late um but they're becoming more aware of you know increased life expectancy they probably see the impact of you know many of their parents not having planned properly for their retirement um and I think obviously the an awareness that you know there's a there's no sort of social support from
• 65:00 - 65:30 our government in terms of providing pensions or things like that so yeah I think generally there's a growing appreciation but probably not as much as there there should be and and Anon I mean are you seeing the the same sort of trend given you know I think everybody is aware that you know particularly we've seen our you know our parents Generations our grandparents generation we've seen the the sort of challenges they face and the fact that you know State uh State security or state funded um Solutions are are definitely not not you know
• 65:30 - 66:00 something that that we have access to in South Africa Sam there are some Timeless fundamentals that we must all be cognizant of and again it's the value of the financial advisor to be able to inspire younger uh uh investors to be very mindful it's a Time fact that we don't know what the future is going to hold we do not know whether we're going
• 66:00 - 66:30 to be healthy enough to work uh after a certain age and it's just um uh responsible to uh have a mindset to cover all the basis and we know the power of compounded interest and we know the calculations the individual that started saving for retirement early on and stopped after 10 years and a person starting to invest when the other one
• 66:30 - 67:00 stops it's always a catch up the the person who started earlier is always way ahead all other things being equal so um uh I think it is a flaw in the modern generation to be a searching for immediate gratification there are some Timeless financial planning principles that that will always remain with us so I tip my hat for the financial advisor
• 67:00 - 67:30 who speaks to the younger generation and is not worried about modern Trends or bells and whistles and uh popular talk it's really to stick to the fundamentals and you will reap the benefits afterwards I close by saying this I recently celebrated my 60th birthday and I got to tell you 30 years if you're 30 years old perceived to be young those 30
• 67:30 - 68:00 years they go past in a blink of an eye and the person at 60 looking back at 30 would be so grateful that they started planning for retirement way way ahead of time I think I think that's a fair point and I think you know Anton the what you mentioned about you know the younger you are you're able to to benefit from that compound interest and you know to me it's a lot of the the the big part of it
• 68:00 - 68:30 is that younger people younger clients don't really resonate with some of the products that that we have out there or they they see it as something that's you know for later on and then you know you almost get to the point where it is too late to to be able to to save enough to to have that retirement or that comfortable retirement I mean when you when you are dealing with a client what are some of the factors because there's so many factors to consider you know exogenous factors what's happening in the economy and you know how to get to the right solution for the client what
• 68:30 - 69:00 their draw Downs need to be what their requirements are how do you you know what are the factors that you you consider um when you're talking to a client and and you know working on their retirement plan uh I got to say um firstly uh take a note of where they are in their process so let's say they are age 45 they still got at least 10 years to save towards retirement having a balancing act between paying off debt and saving
• 69:00 - 69:30 longterm getting the tax breaks on retirement annuities uh the tax breaks uh on retirement annuities are so still so underestimated and the ability to have flexible tax planning in living annuities there after uh there are ample opportunities to have a great balance between and here's always the the key factor is uh spending less than we earn
• 69:30 - 70:00 I think it's the common denominator of all poor financial outcomes is the first step in becoming a millionaire is spending less than you earn uh I mean I I I uh got into that trap and uh it is it's difficult to get out of it uh taking two higher risks and that's why financial planning honestly is one of the most should be one of the most
• 70:00 - 70:30 admired professions if you do it correctly because you need to create a very sound balance in creating paying off debt and saving for the longer term uh it's crucial and Tom I mean you know from from your perspective how do you you know when you have these conversations what are some of the sort of critical things that you know you you discuss with clients Or the critical iCal kind of considerations that you take into account yeah I think you always need to
• 70:30 - 71:00 try and put it into context with a client about you know what obviously what their goals are about when they want to retire um and it's often easier just to fast forward to you know to the end and say look at 65 you know let's let's take a look at what your budget is right now let's have a look at what your expenditure is what's going to change over time and what do you need to be planning towards so that when you get to 65 that
• 71:00 - 71:30 in today's terms you can meet these sort of expenses so you can plant the seed and say listen you know you want to you want to retire and you know meet these these monthly expenses and have these goals so let's let's look at a you know a cash flow let's look at a living andity solution what do you need at that point in the future and then you can kind of work that backwards and say well you know this is what you need to be investing to reach that point um and if
• 71:30 - 72:00 you're not going to make it you need to be investing more you need to allow more time to save or then you can start moving into discussion about you know you know product Solutions and from there so that's generally the way that uh that I do it and I mean you know historically the the risk profiling approach was this the preferred method of kind of aligning a client to a solution do you still think or or do you think that you know the environment that we're in and the way that this industry has changed that
• 72:00 - 72:30 pure risk profiling is is sort of the main element in in aligning to you know what the client should be invested in with the right solution um I mean what's your views on that um yeah I think a lot of the tools that we are given let's say as as financial advisers are are flawed I think they tend to over simplify um the process They Don't Really capture the complexity of a client's you know risk pre preferences or or their capacity to
• 72:30 - 73:00 take on risk um and they generally done you know at a fixed point in time so um you know those assumptions um can change quite drastically you know um with with the client getting older and closer to retirement they can change but also you know clients risk tolerance is often U sort of impacted by their psychological factors you know their emotions where they you know where the
• 73:00 - 73:30 market is in terms of um you know growth if you if you're coming off a bull market and markets are positive I think clients tend to overestimate their ability to take risk or handle risk um and then you know during you know during a client's retirement years um I think clients often tend to be too conservative um in their planning not realizing you know the impact of inflation and how they need to you know
• 73:30 - 74:00 keep their Capital growing ahead of inflation so but coming back to the the profiling risk profiling tools I think there's a lot more work that that can be done and I know Anton's been driving the white paper on on risk profiling so he's probably got you know a lot more value to add in that in that area yeah I mean I think that's that's a good point that you know the the preferences and that risk profiling is at a point in time and there are so many other factors there's so many softer
• 74:00 - 74:30 factors technical factors that that impact and change in a client you know over over time in a client's life I mean Anton um you know as Tom said you you've you know done quite a bit of work on on the risk profiling element um what are your views Sam uh I was privileged in Co to be part of a 12 person team consisting of uh
• 74:30 - 75:00 Professor uh henu skul head of in uh investment at um investment management at the University of Petoria and one of his proy Jays uh that is was busy with her doctorate in Risk profiling uh we took a whole year uh there were nine cfps involved another CFA as as well so three cfas a behavioral uh specialist and then nine
• 75:00 - 75:30 cfps of which four were former financial planners of the year so it was really an and uh and the the financial planning Institute the CEO Lani uh or bid note was part of it and the financial intermediary Association at representative so it's the first indust his white paper on risk profiling in South Africa that was published on
• 75:30 - 76:00 the uh 5th of August 2021 after a year of deliberation and then putting together a white paper and it's referring to phase omber determinations it's referring to basic uh definitions of what is conservative what is aggressive Etc and that whole work Group found as Tom eluded to that many if not most of these
• 76:00 - 76:30 basic risk profilers that have been pushed down our throats for decades are totally flawed and the committee uh made a recommendation that they should be abolished sadly very few of those risk profiles that we refer to have been taken off the market they still EX exist so with Kofi coming there's an additional a magnifying gloss on
• 76:30 - 77:00 suitability so we're going to find that advisors are going to be held accountable if a they're not aware of the new definitions of risk tolerance risk required um uh risk capacity uh we uh often um use risk profile and risk tolerance interchangeably so this whole issue around risk profiling and I I land with
• 77:00 - 77:30 this much more can be said but the whole issue around risk profiling it is a critical part of the suitability component it's um suitability is overarching so it's needs and risk profile both need equal consideration and there's a whole lot of more work that Financial advisors will need to do to fully appreciate and understand the underlying components of
• 77:30 - 78:00 risk profiling there is a change coming and it's quite needed yeah and I mean I think the the big point there is that that advice that that risk to advisers of not um you know of of just getting or proposing the wrong solution or the wrong product for a client then becomes a bigger Factor because clients obviously have you know liquidity needs they have longer term needs and they they almost need to to have a solution or a product that caters
• 78:00 - 78:30 for both that doesn't expose the client to to that longevity risk um you know Rico I mean maybe you can um jump in here from a from an asset manager point of view how do do how does your team sort of think about these Solutions and you know I mean given all of the factors that that Tom and and Anton have talked about how do you guys look at at solutioning and the products that we take to Market yes yeah thank thanks S I mean I I I read the paper Anon Co wrote and I
• 78:30 - 79:00 thought it was really good so I highly recommend it um you you you highlighted the right word there Sam it's uh longevity and that that's unfortunately the problem clients in retirement does not have compared to younger uh investors there's just not so much time to recover uh if there are big Market draw downs and at the same time they've got these monthly withdrawals they need to to take from so so so we think where typically when we
• 79:00 - 79:30 construct portfolios we think a lot about optimizing risk versus return and often risk is defined as volatility and draw down and those type of measures the subtle change when we think about living annuities especially the new product range that that we launched in in June is to rather think about extending the time period or the probability of a a living annuity client assets lasting uh to help them with their withdrawals
• 79:30 - 80:00 now there's no 100% guarantee especially with high withdraw drawing clients but it's just trying to use all the tools at our disposal to try and maximize that time period available so we use the 30-year period to to to optimize uh and and and maximize that that uh we call it success rate in retirement now we've got various tools at our disposal firstly we use a lot of the Fantastic asset managers that that we select many of
• 80:00 - 80:30 whom uh were on the school today uh some of the B you saw today laurum and btia really a high quality managers is also some of the big asset managers uh and many of whom are have got an absolute return mindset the 91 opportunities Alan gr to an extent absolute return mindset in selecting stocks uh through 361 aax Etc so we combine those type of managers um we I mentioned we blend large and
• 80:30 - 81:00 smaller managers to provide that extra layer of diversification we include flexible managers again helping with downside protection at critical uh periods we use our hybrid too that I won't go through uh into given uh a short time today but I think then on top of this uh what we introducing is is the two bucket approach so it's it's very popular in the industry amongst financial advisers and the whole idea is to have an income bucket fairly stable
• 81:00 - 81:30 bucket and then a growth bucket um and the idea is when markets are in draw down use the income bucket for client withdrawals and don't crystallize losses from the growth bucket component now our research shows that out out the last 100 years we had about 120 draw Downs in South Africa including single month draw Downs only four draw Downs over the last 100 and something years lasted more than
• 81:30 - 82:00 two and a half years so it does tell you that roiles typically recover quite quickly uh and if you've got enough income to cover you for at least two years or hopefully close to two years you can avoid that crystallization of losses for quite a period of time and we think that's a big benefit to clients and then the last um Arrow in our armor that we apply as our tactical asset allocation now we've got a team that
• 82:00 - 82:30 that come up with our our monthly tactical asset allocation view we've shown over time that we can add a bit of value through through through this process and a great example was in August where we combined the various steps so August first week of August was was not a great week for markets it was a big Brad down in the markets we saw the product since launching June was actually in the red uh we we decided not to crystallize any losses or uh not to
• 82:30 - 83:00 sell assets and crystallized losses for for clients or sell growth assets and we in fact went and bought a little bit of growth assets on top of that given our positive tiew on on assets especially local assets and and that worked out very well and and hopefully we can continue with that product using those principles and adding value for clients through through the living anity processing just stretch the longevity of the assets uh for our plants and I I think Sam the last Point um I think is
• 83:00 - 83:30 extremely important through this bucketing approach there's a psychological element and this is a lot of the insights we've gained from advisers over the years that that are much C closer to clients than us by using this bucketing approach it allows clients to take more risk in the growth buet because I always feel the safety of the income buet that will cover them through through draw phases thanks Sam I've said a lot but hopefully that's very useful and I think
• 83:30 - 84:00 you know the the points that you rais you know what comes out at me is that there's a big marriage or partnership between the asset management capabilities in creating these models so almost taking some of the pressure off and advice they're having to to constantly you know manage that balance between an income bucket and uh and a growth bucket um you know which which sort of leads me to believe that at least you know there's some part of the industry that's actually listening to what an advisor is you know is requiring and trying to have that partnership
• 84:00 - 84:30 rather than us working across purposes I mean Tom you know from as an advisor do you think you know Solutions like this are are more foot for purpose than you know what was previously available do you think that clients will will resonate or these sort of products will resonate with clients um you know what do you think about these sort of solutions yeah I'm very positive on the solutions I mean I've always like to use um a bucket approach uh in managing you know client income particularly in In
• 84:30 - 85:00 Living annuities um but it it has always been difficult to to know when to rebalance the asset allocation and when to top up the income bucket and it's often only done at the client's annual review um because that's when you tend to meet and you know discuss income requirements and top up income buckets at the same time and that's not always the best time to be doing it so I think this dynamic solu um that R has talked to is is really good um it takes a lot of the risk away
• 85:00 - 85:30 from us as advisers in terms of timing um and I agree with them totally that I think it it does psychologically allow a client to take on a little bit more risk to take on more growth assets and we know that clients tend to be to want to be too conservative in their in their living annuities and as I mentioned before that places you know big risk um in not meeting inflation sufficient inflation beeting returns so
• 85:30 - 86:00 I think that's key I mean what I also would say is that you know just because a client wants to draw or can afford to draw a low initial income um you know if a clients plan well perhaps you know perhaps they're retired but they're going to be working a few more years consulting or they might have other sources of income or or SP assets continuing to work they can afford to draw a lower income initially um but that doesn't necessarily mean that they
• 86:00 - 86:30 need to take less risk you know they might they might have that opportunity to then really grow you know grow their assets for a period of when they need to up their income withdraw later on so um I think it's important to have the flexibility to retain High Equity exposure in the growth bucket uh even when drawing lower income uh at lower income rates and the product I mean and the solution allows for that which is which is
• 86:30 - 87:00 good okay and I mean I think it always goes back to as you say you know the the holistic approach so it's not just pure risk profiling or what a client can afford to or or is doing at the time but what they're actually able to um to withstand from a you know based on on their plans post retirement or getting up to retirement I mean Anton how do you think you know these kinds of solutions do you think clients will be open to these kinds of solutions advisors will be open to these kinds of solutions um historically asset managers you know tended to create things and sort of go
• 87:00 - 87:30 to market and and you know there's not always that partnership between an advisor and what an asset management and asset manager is delivering Sam I must say I I think the time has come and with Kofi replacing phase in the next few years we will see a shift uh where it's going to become much clearer what the responsibilities are and the capabilities are of financial advisors
• 87:30 - 88:00 as opposed to asset managers I've got to say you know uh uh I jokingly refer to the fact that I'm a cfp so um I've done my chores I've done my bit as an investment specialist contributed to the risk profiling papers over the last 10 years and really actively involved in this but there's a
• 88:00 - 88:30 major difference between being a cfp dedicated to financial planning as opposed to being a CFA and doing Investment Management I've seen in the marketplace and many of these top firms I know very well awardwinning firms financial planners of the Year Etc all of them with without exception use dfms because they've realized that
• 88:30 - 89:00 looking after clients is so captivating and they need such a lot of attention that you cannot play uh asset manager wannabe as well and with Kofi referring to the suitability and the magnifying glass that I refer to it's going to be very important for financial advisor to understand that they will free up their capacity looking after their clients better if they trust a proper dfm to do
• 89:00 - 89:30 the management now a managing income Tom could not have articulated it better because often you plan to see a client once a year especially to the topend clients uh many advisers don't even get to their clients on a on a 12 monthly basis so how do you manage the income draw Downs two principles and then I'll
• 89:30 - 90:00 close the first is it is a principle that you should not withdraw from a declining portfolio because you sell many more units and after selling those units if markets recover the units aren't the same and therefore your portfolio would never recover to the same extent so it's almost the double whammy we've got a phase omit determination that marked that point where the omit found in favor
• 90:00 - 90:30 of the client where the advisor did not use a income bucket to withdraw capital and income from from a stable portfolio and they use that specific argument the second is that income bucket creates the capacity for the client as Rico eluded to to take on more risk so this balance between an income bucket for a living annuity and creating capacity to take on
• 90:30 - 91:00 more risk the value of the advisor is managing the fluctuation in the portfolio but the psychological advantage is the client can rest assured that they are not withdrawing from a declining portfolio the closing argument is I've got to tip my hat to the solution because for advisors who see their clients maybe once a year to be
• 91:00 - 91:30 able to manage the rebalancing from the long-term portfolio into the income bucket is almost an impossibility the inconsistent application of those rebalancing that take place it's just putting your entire uh client portfolio uh uh under more risk so I'm a I'm a great supporter of the solution I think it will take a lot of risk out of the equation for financial
• 91:30 - 92:00 advisors thank you thanks Anon thanks Tom thanks Rico I think what's clear is this is the kind of solution and and the thinking that we need to have which is that partnership to help advisors and not work against advisors you to ultimately deliver products that that benefit the client and help them you know in their retirement investment so thank you all sorry apologies for for going time but I think it was a great discussion and I'm now going to hand back to to
• 92:00 - 92:30 Andrew thanks Sam I appreciate that um Anton just before you drop off we had a question whether you could share a link for the risk white paper I don't know if you could just drop that into the Q&A chat so that everyone will be able to see it I will send that on thank you very much and Sam thank you very much for leading the discussion andon Tom thanks for joining um including advisers in our process is is actually essential to designing and Building Solutions that actually work for our clients rather than just pushing out pure fund constructs and that's why the advisor
• 92:30 - 93:00 voice is part of these calls and why we can design Solutions like the dynamic living annuities which are available for all of our clients uh earlier you might have heard Warren from bachor mention that southern sun is one of his stop stock picks as it happens the CEO of Southern Sun is going to be speaking at the upcoming inate invest Summit in jber on the 12th of September if you are attending and have registered fantastic you'll have the opportunity to meet us and also hear from the southern Sun CEO if not unfortunately we're over subscribed with about a thousand people
• 93:00 - 93:30 already registered so um hopefully we'll be able to see you next year we often talk about pedigree p uh Power and Partnerships at inage invest and a key benefit of partnering with us is that we're able to draw on industry leaders and that's thought leaders like the fund managers we asked to attend today uh the CEO of a large JSC listed business or indeed experienced advisers like Tom and and Anton I want to thank you the audience for joining us today and dialing in uh I know your time is precious we appreciate that you found
• 93:30 - 94:00 value in spending it with us uh this recording will be made available for you on our website the inate CPD portal and also on YouTube it was a pleasure hosting the event we look forward to seeing you on the next call in Q4 so thank you very much until next time goodbye [Music] inate is a registered trademark of stanlib wealth management PTY limited an authorized financial services provider