2017: Success in challenging times

By Carl Roothman, CE of Retail, Sanlam Investments

While the year 2017 was challenging for most South Africans, we can also look back on a year of strong global growth and many rewards for the Sanlam Investments Retail business and for those investors who entrusted their savings to us.

There are signs of strong global growth

Internationally, there are signals of a recovery in Europe and the US. In the first quarter of the year  US jobless-benefit rolls declined to a 28-year low, paving the way for a US federal funds rate hike. In the subsequent quarter Germany’s IFO current conditions index reached a 50-year high. In the third quarter China posted strong GDP figures, boosting commodity prices, and growth in the US was also strong, despite statements that quantitative tightening is about to commence in October. US markets were particularly buoyed by President Trump’s proposal to cut corporate tax rates from 35% to 20%.

SA is not sharing in the global recovery

It’s been a disappointing year for the local economy. Disconcertingly, unemployment remained persistently high at 27.7% throughout the year. In the second quarter of the year SA entered a recession as GDP fell by 0.7% after the previous quarter’s 0.3% contraction. In addition, SA government debt was downgraded by Moody’s, S&P and Fitch in April. Subsequently, GDP turned positive, but the year-on-year growth figure currently stands at a mere 0.8%.

More than ever our country needs policy certainty

As an emerging economy, it’s important that we keep our debt levels low and our credit rating healthy to attract the funding that we so desperately rely on. But our country is facing challenges and investors and credit rating agencies are increasingly concerned about our ability to bring our debt under control.

In October, Minister Gigaba’s Medium-Term Budget Policy Statement (MTBPS) provided no detail in terms of how we are going to reduce our debt as a nation and little comfort for credit rating agencies. Bond yields spiked and we expect a sideways movement in bond markets during the ‘information vacuum’ we are left in until the National Budget delivery in February next year. Shortly after the MTBPS delivery, S&P announced that SA local currency debt is now rated as non-investment grade (junk) and lowered SA’s foreign currency debt one notch deeper into junk. Moody’s placed the country on review for a downgrade, but will in all likelihood wait on the Budget before making a decision.

The upcoming ANC Elective Conference is politically and economically significant. Regardless of the outcome, SA has specific core challenges that need to be addressed over the next few years if things are to improve. As your trusted partner, we’re focused on delivering on clients’ objectives and will continue to stick to the fundamentals, assisting our clients to stay the course.

Inflation and the rand remain stable – for now

On a positive note, inflation remains contained with the latest figure released on Wednesday stating consumer inflation as 4.6%. With inflation momentarily under control the Monetary Policy Committee announced the first rate cut in five years in July this year. Our currency also remains resilient. The rand currently stands at R13.50 against the dollar, significantly stronger than last year’s average level of R14.70 against the dollar.

Higher taxes hit investors’ pockets

With the delivery of the National Budget in February, former Finance Minister Gordhan showed Treasury’s commitment to reducing the country’s debt levels as he announced a new 45% income tax bracket, reducing the net income SA citizens have left for investment. He also introduced higher dividends tax (now 20%) and CGT inclusion rate (40% for individuals and special trusts and 80% for companies and standard trusts).

It was a year of record highs for market indices

Despite the political instability locally and uncertainty being the new norm worldwide, it’s been a very rewarding year for equity investors across the globe. Locally, the FTSE/JSE All Share Index (ALSI) hit a record high of 61 211 in November of 2017 and for the year to date (up to 30 November 2017), the ALSI and listed property have returned 21.4% and 12.4% respectively. Internationally, the MSCI World Index and the MSCI Emerging Markets Index ($) have been particularly kind to investors at 20.8% and 32.8% respectively in dollar terms.

Investors continue to save diligently

According to the latest statistics released by the Association for Savings and Investment South Africa (ASISA), during the first three quarters of 2017 the total net inflows into unit trusts amounted to R138 billion. SA Multi Asset portfolios held 50% of the total R2.2 trillion of assets under management on 30 September 2017. While net inflows remained consistently strong over the past five years, with SA Multi Asset being the preferred category, there has been a shift towards interest bearing portfolios this year.

Direct investors contributed to 29% of the inflows for the 12 months to the end of September, intermediaries contributed to 26% of the inflows, while linked investment service providers and institutional investors account for 20% and 25% respectively.

Our business is growing in leaps and bounds

Needless to say, we are highly pleased that Sanlam Investments has gathered a large portion of this asset growth over the past few years. In fact, for the three years to 30 September 2017 we’re the asset manager showing the highest percentage growth.

On a year to date basis the Sanlam Investment Management (SIM) Enhanced Yield and SIM Balanced Funds are notable standouts in terms of flows. Relative to 2016, we have taken flows across our offerings, delivering on our diversified distribution strategy. And we have done well in a tough economic environment, where the pool of new money has shrunk and flows across the industry have significantly weakened.

We are delivering on the promise of long-term performance

Looking at our core active fund range, the SIM Enhanced Yield Fund, the SIM Inflation Plus Fund and the SIM Top Choice Equity Fund are in the first quartile over the five-year period to 30 November 2017. Our SIM Balanced Fund and SIM General Equity Fund are known for their consistency and achieved solid second quartile returns for the five years to 30 November 2017 in highly competitive peer groups.

Earlier this year three Sanlam portfolio managers brought home accolades for being the top performers in their fund categories after the 21st Raging Bull Awards ceremony. The awards are based mainly on straight performance, calculated by Profile Data for the three-year period to end 2016. The winners were the SIM Enhanced Yield Fund, the SIM Small Cap Fund and the SIIP India Opportunities Fund.

We are proud of our fintech awards

EasyEquities and Satrix were once again thrilled to receive the overall award for Best African FinTech Company 2017 at the Finance Indaba Africa this year. The award was shared with ThisIsMe, an identity verification and due diligence platform. The African FinTech Awards is part of Finance Indaba Africa, the largest conference and expo for finance professionals on the continent.

In addition, Sanlam Investments was a finalist in this year’s IAB Bookmark Awards Craft – Interface Design category and its investment tool, Smart Invest, also received a bronze at the Loeries this year.

Thank you for your support

I would like to use this opportunity to thank you for your support in 2017. May you all be taking a break to recharge and celebrate the year’s successes over the coming festive season. I wish you a highly prosperous and healthy 2018. Although all reasonable steps have been taken to ensure the information on this website/advertisement/brochure is accurate, Sanlam Collective Investments (RF) (Pty) Ltd does not accept any responsibility for any claim, damages, loss or expense; however it arises, out of or in connection with the information. No member of Sanlam gives any representation, warranty or undertaking, nor accepts any responsibility or liability as to the accuracy of any of this information. The information to follow does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act. Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision.

The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium- to long-term investments. Please note that past performances are not necessarily an accurate determination of future performances, 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, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved Manager in Collective Investment Schemes in Securities. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge.  Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any  deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of the portfolio and the investor will differ depending on the initial fees applicable, the actual investment date, and the date of reinvestment of income as well as dividend withholding tax. Forward pricing is used.  The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The performance of the portfolio depends on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date.  Lump sum investment performances are quoted. The portfolio may invest in other unit trust portfolios which levy their own fees, and may result is a higher fee structure for our portfolio. All the portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002 (“CISCA”). The fund may from time to time invest in foreign instruments which could be accompanied by additional risks as well as potential limitations on the availability of market information. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates.  The portfolio management of all the portfolios is outsourced to financial services providers authorized in terms of the Financial Advisory and Intermediary Services Act, 2002. Standard Bank of South Africa Ltd is the appointed trustee of the Sanlam Collective Investments Scheme/ Standard Chartered Bank is the appointed trustee of the Satrix Managers Scheme.

The Sanlam Investment Management (SIM) Balanced Fund is a multi-asset, high-equity fund and is exposed to equities, which means the prices will go up and down. The Retail class is the most expensive class offered by the Manager. The maximum fund charges include (including VAT): An initial advice fee of 3.42%; annual advice fee of 1.14% and annual manager fee of 1.25%. The most recent total expense ratio (TER) is 1.67%. The SIM Enhanced Yield Fund is an interest-bearing fund that invests in a wide range of debt instruments. The Retail class is the most expensive class offered by the Manager. The maximum fund charges include (including VAT): An initial advice fee of 0.34%; annual advice fee of 1.14% and annual manager fee of 0.47%. The most recent total expense ratio (TER) is 0.49%. The SIM Inflation Plus Fund is a multi-asset, high-equity fund and is exposed to equities, which means the prices will go up and down. The maximum fund charges include (incl VAT): Initial advice fee, 1.14%. Initial manager fee, 0.00%. Annual advice fee, 1.14%. Annual manager fee, 1.14%. Total expense ratio (TER), 1.25%. The SIM General Equity Fund is an equity fund, which means the prices will go up and down. The maximum fund charges include (incl VAT): Initial advice fee, 3.42%. Initial manager fee, 0.00%. Annual advice fee, 1.14%. Annual manager fee, 1.25%. Total expense ratio (TER), 1.56%. The SIM Top Choice Equity Fund is a high-conviction equity fund, which means the prices will go up and down. The maximum fund charges include (incl VAT): Initial advice fee, 3.30%. Initial manager fee, 0.00%. Annual advice fee, 1.14%. Annual manager fee, 1.02%. Total expense ratio (TER), 1.13%. The SIM Small Cap Fund is an equity fund, which means the prices will go up and down. The maximum fund charges include (incl VAT): Initial advice fee, 3.42%. Initial manager fee, 0.00%. Annual advice fee, 1.14%. Annual manager fee, 1.71%. Total expense ratio (TER), 1.75%.

Please note that past performances are not necessarily an accurate guide of future performances, and that the value of investments / collective investment units / unit trusts may go down as well as up. Commission may be paid and, if so, would be included with the brokerage charges, securities transfer tax, auditor’s fees, bank charges, trustee fees and levies in the overall costs, which will be levied against the fund. A schedule of fees and charges and maximum commissions is available from the manager, Sanlam Collective Investments(RF) Pty Ltd on request. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Collective investments are calculated on a net asset value basis, which is the total value of all assets in the portfolio including any income accrual and less any permissible deductions from the portfolio. Portfolio performance is calculated on a NAV to NAV basis and does not take any initial fees into account. An annualised growth rate is used for all performance data of 12 months or longer. Income is reinvested on the ex-dividend date. Total return performances are published. The source of performance data and risk statistics is Morningstar. Actual investment performance will differ based on the initial fees applicable, the actual investment date and the date of reinvestment of income. Forward pricing is used. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The manager has the right to close the portfolio to new investors in order to manager it more efficiently in accordance with its mandate. If the fund holds assets in foreign countries and could be exposed to the following risks regarding potential constraints on liquidity and the repatriation of funds, macroeconomic, political, foreign exchange, tax risks, settlement risks and potential limitations on the availability of market information.