On the 23rd of June, UK voters will decide whether to leave or remain in the EU. The run-up to this referendum has caused some concern in markets – most visible in the weakness of the pound sterling, and a pause in the pace of economic activity in the UK. ...See all articles
By Rafiq Taylor, Portfolio Manager and Head of Retail Implemented Consulting, Sanlam Multi Manager
On 23 June, British citizens voted on whether Great Britain should remain part of the European Union, a community they’ve been a member of for over 40 years. On Friday morning the Leave campaign stole a narrow victory (51.9% to Leave and 48.1% to Stay), despite market consensus building up to the vote that we would likely see the UK remain in the EU. This resulted in a large amount of volatility in the currency and global equity markets. The British Pound (GBP) as well as stocks with GBP exposure were particularly affected as uncertainties surrounding the future of many of these businesses with operations in the UK was placed into the spotlight.
While most stocks have struggled, there have been areas of the markets which have done well following the news. US treasury bonds strengthened while gold companies and the spot price of gold rose handsomely, all on the back of a global flight to safety.
Locally, we’ve similarly seen a broad sell-off, with gold counters such as Sibanye, Goldfields and AngloGold some of the handful of stocks whose share prices are trading higher. Property fell, with rand hedge counters such as Intu (INTUPLC) and Capital and Counties (CAPCO) especially hard hit. The following shares recorded the biggest initial price moves in the local market:
 As at midday, 24 June 2016.
Looking at currencies, the rand strengthened against the British Pound but the Pound weakened against most major currencies, such as the US dollar.
Bonds also weakened significantly, falling over 3% initially, but strengthening as markets approached midday.
Over the last few months, much has been written and spoken about the potential for a Brexit to occur as well as many of the repercussions for the UK, Europe and global growth in general. Brexit has also raised new market uncertainties:
- Will Scotland seek another referendum on whether to remain a part of the UK?
- Will Northern Ireland also look to have a referendum on UK membership?
- Will other European Union nations look to hold similar referendum votes?
- How will European leaders provide comfort to their citizens to retain membership in the Union?
- How will this affect global growth and in the region in general, and will this lead to contagion risk in global markets?
- What will the effect be on immigration across the UK and Europe?
- How does this affect interest rates globally, particularly in the US where they have been eager to raise rates?
These are merely some of the potential risks and uncertainties that have been raised by economists globally. What is certain, however, is that volatility will persist amidst the lack of stability in the short to medium term in the region.
Over the last few months, we discussed the possibility of a Brexit in many our investment committee meetings. This, along with many other risks still prevalent in markets, has informed our more cautious view. As such, we’ve looked to increase exposure to more defensive managers and strategies. The amount of volatility following the fallout again emphasizes the importance of having the flexibility to protect investors from these swings in asset prices and also to potentially capture opportunities where stocks have been oversold.
We therefore retain conviction in our current managers’ ability to manage through this volatility. In these times of market turmoil, investors need to remind themselves of their long term investment objectives and stay the course.
Disclaimer: Sanlam Multi Manager International is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act (FAIS) 2002.
Previous article: Brexit: what does this mean for investors
Ricco Friedrich, portfolio manager, gives more insight into what’s happening in China, and why his fund is still invested in commodity companies.
Denker Capital is a division of Sanlam Investment Management, Pty Ltd
Previous article: Equities – not for everybody
Your retirement years are something to look forward to. This is the time to spend with your grandchildren, pursue your hobbies full-time, or pursue whatever you find most fun and meaningful – at your own pace. But if you did not build up sufficient savings, this phase of your life could turn out to be highly stressful. How do you make sure that you’ve saved enough to enter your retirement years feeling confident and secure?
Postpone saving no longer
The sooner you start saving through your employer’s retirement fund or your private retirement annuity (RA) – or both – the better. It’s generally recommended that 20-somethings start saving 15% of their total income and continue to do so for at least 40 years to make sure they retire with enough. But if you start in your thirties or later, you would need to save a much larger percentage of your income every year to catch up.
Pay the taxman less
The less tax you pay, the more money you have left to save. But to qualify for tax relief you need to choose the right type of investment product. With products governed by retirement law, such as an RA or your employer’s retirement fund, you can now invest up to 27.5% of your annual income and enjoy tax relief on those contributions. Contributing more to your employer’s fund means that you’ll see an immediate reduction in the amount of tax that’s deducted from your monthly salary. With an RA you’ll have to wait until your tax return has been processed to see whether you’re due a refund from SARS. The best thing to do with that refund is to reinvest it, of course.
For more information on exactly how much you can save towards a retirement product and enjoy tax relief, watch this video on T-Day, the day on which the tax laws for retirement products changed.
Preserve your money
When you move from one employer to another you might be tempted to take all of your retirement savings as a cash pay-out, but remember the tax! Also, saving enough money for retirement is hard enough. Dipping into your savings at any stage could set you back significantly. The two most common tips that retirees have for younger generations are to start saving earlier and to preserve their savings every time they leave a job.
What should you do with your accumulated savings then? You have three options: a transfer to either an RA, a preservation fund or your new employer’s fund. You don’t pay any tax on a transfer to either an RA or a preservation fund. Once your money is in the preservation fund you’re allowed to make one (taxable) withdrawal should you run into financial difficulties, but with the RA you need to wait until your retirement date. You may decide to consolidate your retirement savings and transfer the money to your new employer’s fund so everything is in one savings pot. Just bear in mind that a provident-to-pension-fund transfer is not taxable, but a pension-to-provident-fund transfer is.
Professional help is a must
The closer you come to retirement the more important it becomes to consult a professional financial planner. He or she will be able to calculate the exact figure that you need at your desired retirement age and how much you need to save every year to reach that magic number. Equally important is the sound advice that you’ll receive to help you navigate the tax laws covering retirement products – both before and after retirement. We recommend that you speak to a financial planner rather sooner than later.
Prolong your working years
By working longer you’re able to save more towards retirement and it also means you’ll be living off your savings for a shorter period of time, enabling you to draw more retirement income every year. This living annuity table (page 2) provided by the Association for Savings and Investment SA is very useful to determine what percentage of your total savings you can withdraw if you want to maintain your income for a certain number of years. Postponing your retirement date is a great recipe for a more comfortable retirement.
Plan your post-retirement business
Because there’s no guarantee that your savings will be able to keep up with your living costs throughout retirement (especially if you enjoy extraordinary longevity), it’s a good idea to start working on a hobby now that could supplement your retirement income later. Starting a second or even a third career after the age of 60 is becoming more common and can re-energise you and refill your savings pot. (Read more about fulfilling your dreams in retirement).
A financially carefree retirement is built through a sequence of sound decisions throughout your life. Start planning for the best time of your life now.
Previous article: Market update: March 2016
By Rafiq Taylor, portfolio manager at Sanlam’s multi-manager business
Large, established asset managers still have much to offer investors. Other than their established brand and track record, the larger managers are also able to exploit economies of scale in the fixed interest space and still exhibit asset allocation skill. However, by ignoring the smaller boutiques, investors could miss out on some attractive outperformance.
These are the top 3 reasons to seriously consider including some boutique managers in your portfolio:
1) A greater opportunity set in the equity space
Large managers have a limited number of stocks on the JSE in which they can hold a meaningful stake, say at least 2% of their portfolios. For example, a R500bn asset manager can play in a universe of only about 40 stocks if it doesn’t want to own more than 25% of any of those companies’ free float. In contrast, a R50bn boutique manager has more than 120 JSE stocks to choose from without owning more than 25% of the company. Boutique managers are therefore able to exploit market opportunities that are not available to larger managers. This is due to the practicalities of trying to build-up a meaningful shareholding across multiple portfolios.
Another benefit of boutique managers is that they are nimbler and more responsive to opportunities in the market. Because of their smaller holdings in companies they can move quickly to take advantage of market mispricings – before those mispricings are traded out.
3) Manager ownership
Many of these smaller businesses are run by experienced individuals who used to hold senior positions at large asset management companies before breaking away to start their own businesses. These talented individuals have ploughed a lot of their own time and money into a new venture they are truly passionate about. With ownership comes the drive and motiviation to succeed. We view those manager owners with true skill as the next-generation asset managers, and they have the ability to become larger managers over time.
Small alone is not enough
In the context of a low-return environment, small managers’ advantages – a greater opportunity set, fluidity, and ownership – form the bedrock to potentially generate positive alpha for investors. However, this potential will only be unlocked if the small manager displays true fund management skill.
Can they pin-point the anomaly?
When analysing manager skill the first question that needs to be answered is whether a manager is exploiting a specific anomaly in the market. Then one needs to explore whether the manager understands why this anomaly exists and whether this anomaly will persist. To utilise this anomaly the managers need a repeatable process that put their beliefs into action to generate alpha consistently over time.
Going forward, in an environment of expected lower returns, these boutiques will make a big difference, as they can trade faster, and are more likely to outperform. They have already proved themselves in a very short space of time.
Sanlam Select – choosing the skilled small managers
Because the barriers to entry to becoming an asset manager have been reduced, sifting through the universe to find talented managers is not a simple task. However, we believe we have the skill to find these managers and to identify the next generation of truly skilled managers. As part of Sanlam’s diversified multi-asset investment strategy, the multi-manager business recently developed a platform of boutique managers, called the Select range of funds by Sanlam.
Although the track record for the Sanlam Select managers is still relatively short, returns for these boutique managers demonstrate that spending the time to uncover truly skilful managers, even though they might be relatively unknown, is indeed being rewarded. In an environment where returns on equity markets are expected to be relatively modest compared to the last 10 years, good boutique managers are in high demand. Little wonder these managers’ share of market has grown by more than 50% over the past two years!
A showcase manager: Capricorn Asset Management
The Sanlam Select Flexible Equity Fund has been managed by Capricorn Asset Management since October 2014. Capricorn’s skill lies in their ability to identify themes from a top-down perspective, which helps them to identify the sectors where there are opportunities to exploit these themes. They have a momentum bias and maximize the upside of the equity market while limiting the downside experience through defensive stock selection, opting for certainty of cash flows from the stocks they select.
Capricorn’s investment philosophy sets them apart within a market where the focus is mostly on bottom-up fundamental analysis. Capricorn have proven themselves to be very skilful in the hedge fund space, and we believe that this skill is transferable to the long only space, especially within a flexible fund where they are granted more freedom than in a traditional equity fund.
All reasonable steps have been taken to ensure the information in this document is accurate. All the information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity and should not be interpreted as advice.
Sanlam Collective Investments (RF) (Pty) Ltd a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. Past performance is not necessarily a guide to future performance, and that the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager on request. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Please refer to the Minimum Disclosure Document of the funds to see if performance fees are charged and how it is calculated. Sanlam Multi Manager International and Capricorn Asset Management are authorised Financial Services Providers in terms of the Financial Advisory and Intermediary Services Act, 2002.
Previous article: Market update: May 2016