Tag Archives: Financial Markets

Views – Your Questions Answered

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Q: Have you saved enough for retirement? Generating a passive income should get you retiring comfortably.

A: Passive income is the fruits of investments you have made that pay you a recurring income, without decreasing the value of the investments. In a perfect world these investments would keep paying you forever. Sounds beautiful, right?

In reality, building a sizable passive income stream takes a phenomenal amount of hard work, timing, business acumen, investment savvy, fortune and most importantly: time. The point I’m making is that if you want to be able to retire one day, you better get investing ASAP.

Read more here: The Basics Of Wealth Part 2

Source: Ricki Allardice, Sharenet Wealth Manager

Need advice or guidance on investments best suited for your needs? Contact our Wealth division, for a free consultation.

wealth@sharenet.co.za

Graphonomics

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On the 30th January 2018, fund managers Viceroy, who exposed accounting fraud in Steinhoff last year, published a report on Capitec, describing the company as a “loan shark with massively understated defaults – masquerading as a community finance provider”. The share price plunged to a low of R705.00 on the day, but closed at R915.92.

Graph: Capitec’s performance from 26th January to the morning of the 31st, showing the plunge following the release of the Viceroy report on the 30th. Note how the share price was already on the decline a few days before, suggesting some already knew about the pending report. (Graph source: Sharenet)

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What is cryptocurrency and should I invest in it?

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Q: What is cryptocurrency and should I invest in it?

A: A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.

If you are considering investing in cryptocurrencies, it may be best to treat your “investment” in the same way you would treat any other highly speculative venture. In other words, recognise that you run the risk of losing most of your investment, if not all of it.
 

Source: Investopia

Want to follow the Crypto trend? We’ve got you covered: Check out the main crypto spots now available on our free mobile app (http://www.sharenet.co.za/v3/app.php), spots page (http://www.sharenet.co.za/v3/spot.php) and charts/news on our crypto page(http://www.sharenet.co.za/v3/crypto.php).

Need advice or guidance on on investments best suited for your needs? Contact our Wealth division, for a free consultation.

wealth@sharenet.co.za

Did You Know?

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Institutional investors on their way to investing in Bitcoin

CME Group, the world’s leading derivatives marketplace, is planning to offer futures on Bitcoins by the end of 2017. The contracts will most likely be settled in cash, and will make use of a daily price from the CME CF Bitcoin reference rate.

Bitcoin futures would allow professional investors exposure to Bitcoin’s volatility, as well as the opportunity to trade the futures on regulated venues and use them as a hedging tool.

The Markets As We See Them

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Dear Readers

Welcome to the November issue of the Views newsletter.

While the year is rapidly drawing to a close and “crazy busy” seems an understatement, can I encourage you to steal away for a few moments and be absorbed by something other than your usual day-to-day routine.

Our first article on offer here is by AJ Cilliers, and is a follow-up to his previous piece highlighting the bright future of the super computer in the investing space. The good news is that humans have not made themselves obsolete quite yet, with some interesting research on just how much more successful some fund managers are than computers when it comes to selecting winning shares. You’ll also find tips on how to apply their strategies to your own investment decisions.

How Fund Managers Beat The Computers

20 October 2017 | AJ Cilliers

AJ Cilliers’ companion piece to Will Your Next Fund Manager Be A Super Computer? While computers seem to be better at share trading than humans, share picking remains best done by humans. Find out why…

Read more >

Moving on to the commodities arena, Wim Prinsloo investigates the progress of the electric vehicle revolution, and discovers the looming shift in the demand for commodities for use in batteries and vehicle bodies. Platinum, for one, may not be as much of a ‘precious’ metal in the near future. Don’t be asleep for this, as most of us were for the entrance of Microsoft and computers – you can’t afford to miss it!

The EV Revolution: Which Commodities Will Be The Winners And Losers?

17 October 2017 | Wim Prinsloo

Government support for tighter emission targets is necessitating a faster move towards electric vehicles (EVs) than previously anticipated. Not only will this have far-reaching implications for the global vehicle industry, it will also impact a number of commodity markets over the long-run.

Read more >

Finally, on a more personal note, Nicole Cameron interviews Kim Potgieter on her career as a financial planner. If you’ve ever been curious about making a change into this career and where it can take you, this article will inspire you. A woman passionate about supporting other women in the financial services industry, find out what drives Kim and discover her ingredients for success and happiness at work.

FEMMES in FINANCE: Meet Kim Potgieter, Head of Financial Life Planning at Chartered Wealth Solutions

27 October 2017 | Nicole Cameron

Kim is an authority on financial life planning and helps clients gain a holistic approach towards making healthy money-related decisions.

Read more >

The Simplest Way To Invest

3 November 2017 | Kobus Louw

You only have to consider these four funds for a long-term investment. We have made investments simple by narrowing down the choice to only four funds. You can choose between a conservative, a moderate and an aggressive fund, each fund designed for long-term investors with a specific risk profile in mind.

Read more >

Wishing you good reading and a successful month on the markets,

Natalie Mayer

Editor

editor@sharenet.co.za

Your Questions Answered

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Q:

What is a unit trust fund and how does it work?

A:

Simply put, a unit trust fund is a way for you to invest your money.  You can invest in a unit trust fund through financial services providers such as a broker; an Investment Management Company or in some cases through your bank. A unit trust fund is a pooled resource, which means that it allows a group of investors to combine their cash and invest it.  Think of it like going in on a group gift. Taken altogether, those investments are called the fund’s assets.

So how does it work?

A unit trust fund is made up of equal shares which are called “units”; these “units” have a price called a Net Asset Value. While you as an individual invest in a unit trust fund, the fund itself is run by a fund manager, whose aim is to grow the overall value of unit trust fund.  The fund manager does this by investing the fund’s assets, usually by buying stocks, bonds, or a combination of these two securities which are listed on the Stock Exchange. These stocks or bonds are often referred to as a fund’s “holdings” and all of a fund’s holdings together are its “portfolio.”

A fund’s type depends on the kinds of securities it holds. For example, a small-company stock fund invests in the stocks of small companies. What you get as an investor or shareholder is a portion of that portfolio. Regardless of how much or how little you invest, your shares are the portfolio in miniature.

Source: Morningstar

It is never too early to start investing, but it is also never too late. At Sharenet, we offer a wide range of investing opportunities and will help you tailor your portfolio to your needs.

Visit www.sharenetinvestments.co.za for more information or contact our investment team on investments@sharenet.co.za.

Got an investing question? Ask our friendly Financial Services Advisor

Email: editor@sharenet.co.za

Offshore Investments Made Easy

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The Johannesburg Stock Exchange (JSE) is the largest stock exchange in Africa (and 17th largest in the world), yet the entire African continent only accounts for 1.5% of global stock market value. Other asset classes like SA bonds and property also only make up a fraction of the global value. Taking advantage of investment opportunities offshore means that you as an investor not only diversify your country risk, you also get exposure to some of the fastest growing and exciting industries globally, many of which you are probably making use of every day.

Source: Visual Capitalist

You could have found this article through a search on Google that led you to Sharenet Views. Your computer, possibly manufactured by Dell, uses Windows software that Microsoft produces. Or perhaps you are reading it on your Apple iPhone. These companies are all publicly traded companies that you can invest in. Is technology not your thing? Well then perhaps transport is. If you drive an Audi or Polo you can invest in Volkswagen. Maybe you’re thinking electric cars are the future, so why not invest in Tesla? If an automobile is thinking too small for you, then go with airplanes instead and invest in Boeing. These industries are not available on the local market, but fortunately, the offshore market is now available on your doorstep and there are a few simple ways to gain access to it.

#1 Open a trading account that allows access to foreign stock markets

This is an option only confident investors should consider. Many who try picking companies on the JSE will find that it’s not that easy sifting through nearly 500 companies and picking a winner. Now imagine having to go through that exercise with over 5 500 companies listed in the US alone. If you think you have what it takes, there are brokers in SA that offer access to foreign stock exchanges.

#2 Invest directly in a foreign unit trust

You may not have the skills or time to make the best stock picks in the global market, so why not leave that to the professionals. There are thousands of funds to choose from, but knowing which one is best suitable for you is a daunting task. In addition, you will need to get SARB approval to take your money offshore, adding more time to an already administrative intense process.

#3 Invest in a locally domiciled global unit trust

This is by far the easiest method for the South African investor to gain exposure to international markets. There are unit trusts domiciled in South Africa, meaning you make your investment in ZAR. The fund managers of these funds then convert that ZAR to foreign currencies, like USD, to buy assets in offshore markets. Your investment exposure is in a foreign asset and currency, but your statement always reflects the ZAR value of your exposure. If you feel that you don’t have the required expertise or time to decide which fund to invest in, you could consider a global fund-of-funds where the portfolio manager picks the combination of global funds he/she thinks will deliver the best performance. The Sharenet BCI Global Balanced FoF is a good example of this type of investment.

#4 Buy a global exchange traded fund (ETF)

It is easy for local investors to buy an ETF either through a trading account (like Sharenet Securities), LISP or directly from the provider. A global ETF is a passive investment and tracks a global market index. ETF’s are listed locally, meaning you make your investment in ZAR and get your money back in ZAR when you sell, but you get the exposure to the foreign asset and the return from it. There are assorted options available to local investors that could give you exposure to specific regions.

Conclusion

Investment into international markets has never been easier for South African investors and global brands like Apple and Facebook are virtually at your fingertips. It provides a valuable addition to your portfolio, with fast-growing sectors abroad that could offset weakness from a stagnant South African economy. It also provides good diversification away from political risk specific to SA and it’s easily accessible through several channels that require little admin and time.

10 Reasons to Consider Property

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Unit trusts are excellent investments that can give investors the opportunity to participate in the growth of large businesses and investment assets. Property unit trusts open a door to the property industry with more to offer than an individual could ever hope for in the buy-to-let market. Property funds invest in listed property companies that develop and manage real estate in different sectors (office, retail, commercial, residential) and geographies.

The benefits of investing in a unit trust rather than buy-to-let property make a compelling case for why property unit trusts should be considered if you are looking to enter the property market. This article is focussed on investors that already own a primary residence and is looking to invest in the property market.

1. Selection

The fund manager of a property unit trust selects which property companies to include in the portfolio, raising the likelihood of realising attractive returns on the investment. A buy-to-let property, on the other hand, could be situated in a neighbourhood where there are low growth and few tenants.

2. Historic performance

The total return from listed property has exceeded residential property over the last 5, 10 and 15 years to 30 June 2017 (see below table). Total return includes price appreciation and income. For residential property, an income yield of 7% is assumed with the average buy-to-let property providing income of between 5% and 8% after fees.

Figures as at 30/06/2016. Source: Bloomberg, INET, Sharenet. Listed Property (FTSE/JSE Listed Property TR Index – J253T). Residential Property (BIR Residential Property Price Index plus 7% for the yield component).

3. Size

Adding property to your investment portfolio is a fantastic way to add diversification and potentially boost return. Most investors who buy a property to let will have to allocate a very large portion of their capital to the investment. This means you could risk a substantial portion of your portfolio on a poor investment decision. Unit trusts have much lower investment minimums. The Sharenet BCI Property Fund has a minimum lump sum investment of R25 000 (or R1 000 per month debit order). It allows the investor to only invest the amount that he/she is comfortable with.

4. Diversification

Diversifying your portfolio across multiple asset classes can boost return and improve the consistency of your return. The concept is the same for diversifying between different property sectors like shopping malls, office parks, warehouses and apartment blocks. Unit trusts give investors exposure to these sectors across multiple cities (geographic diversification). Compare this to one apartment in one location and you can start to see that the risk of investing in buy-to-let properties is higher.

5. Liquidity

Unit trusts are liquid investments, meaning you can withdraw your money and have it sitting in your bank account within days. Rental properties are not liquid and could take months (sometimes even years) to sell. Should you need to sell immediately, you may have to put the property up for sale at a much lower price and even then, it will be several weeks before you see the cash from the sale.

6. Costs

Unit trust fees include ongoing management, performance, admin and transaction fees. All these fees usually amount to less than 1.5% per annum for most property funds. Rental property fees dwarf that of unit trusts. To buy or sell a property will see fees associated with the transfer, agent, conveyancer, deeds and other admin fees. Ongoing costs will include insurance, taxes and levies. All these fees can cut a sizable chunk out of your property investment’s performance.

7. Risks

Rental properties carry a lot more risk than an investment in a unit trust. There is vacancy risk if you struggle to find a tenant or can’t get a tenant to pay, causing you to lose income. Listed property also has vacancies, but these are usually less than 10% of the property portfolio, meaning the bulk of the portfolio still delivers income each month.

Listed property is more volatile and your investment can fluctuate a lot more than rental property.

Rental property requires maintenance and something like a geyser bursting is a problem that needs immediate fixing.

8. Leverage

A good case for rental property is that you can take on leverage and use a loan to finance your property investment. Many investors don’t know that listed property companies can also take on leverage and can use clever ways to finance property investments (and at a lower interest rate than individuals can get).

9. Admin

Investing in a unit trust is very simple and can be done within a few minutes. To invest with Sharenet, visit our Investments website. Rental property on the other requires a lot more of your time. You need to screen tenants, run credit checks, set up and negotiate contracts, do viewings, collect rent and address complaints to name a few. You can get an agent to do all of this for you, but that is an additional cost that takes a bite out of your return.

10. Track performance

Unit trusts are priced daily and you can view the value of your portfolio online at any time. Fund managers are also required to provide a monthly fact sheet that shows how your money is invested. It is easier to track the performance of your investment than with rental property.

Conclusion

Property unit trusts hold all the cards relative to rental property. Listed property performance is historically higher than rental property. The risks associated with property unit trusts is less than with rental property and unit trusts are also far easier and less time to consume to invest in than rental property. There are benefits of owning your first property (including tax breaks and cheaper borrowing), but this article focuses on a buying-to-let property where the investor is looking for property exposure in addition to his/her primary residence.

It is easy to add property to your investment portfolio and now you can invest with Sharenet. Visit our Sharenet BCI Property Fund page to find out more.

Balanced Funds

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Balanced funds (also known as multi-asset funds) are by far the most popular unit trusts and is the vehicle of choice for many investors saving for retirement. Balanced funds are designed to achieve long-term real returns in a more stable and consistent manner than a single asset class fund (like equity funds). They use a combination of different asset classes to maximise real return (after inflation) while being cognisant of risk. This article explores the typical construction and variants of these funds on offer to South African investors.

Asset allocation of balanced funds

Balanced funds generally seek to maximise risk-adjusted return. This means that the fund manager needs to construct a portfolio that could generate attractive returns while reducing the likelihood of making losses. This is achieved by including different asset classes in the portfolio like local or international equity, bonds and property.

The asset split depends on the aggressiveness of the fund’s mandate i.e. whether the goal is capital preservation or growth. A fund that aims to generate capital growth will allocate a higher proportion of assets to equity. This makes the fund more aggressive and adds risk, but also has the potential to deliver higher return. If the aim is to preserve capital by beating inflation, then the fund manager will allocate less of the portfolio to equity and buy less risky assets like bonds and money market instruments.

Fund managers can actively manage the asset allocation of the portfolio or elect to keep the asset split near pre-determined weights. The benefit of actively managing the asset allocation is that fund managers can purchase the asset class that is expected to deliver the highest return. If there is pessimism in equity markets then the fund manager can switch from equity into bonds and cash to avoid losses. This method has higher transaction costs and adds the risk that the fund manager makes a bad call on selecting asset classes. Therefore, fund managers often hold the portfolio’s construction close to its strategic weight. The strategic weight of the portfolio is the asset split that has historically delivered the most attractive return for a certain level of risk over the long term.

How to Choose Between the Types of Balanced Funds

Balanced funds can be divided into different risk categories ranging from cautious to aggressive. One method for investors to distinguish between these categories is to look at the sector that the fund is classified in. Most Balanced funds are divided into four sectors namely, Multi-Asset Flexible, Multi-Asset High Equity, Multi-Asset Medium Equity, Multi-Asset Low Equity.

The Multi-Asset Flexible sector includes funds that have flexibility in their asset allocations. The Sharenet BCI Flexible Fund can be placed in this category. Most flexible funds are managed with active asset allocation and aims to maximise long term growth. Some fund managers in this sector use the flexibility of switching between asset classes to manage the risk in their portfolios.

The Multi-Asset High Equity sector is the category of funds most popular among retirement savers. Funds within this category are limited to a maximum of 75% in equity and the funds eligible for retirement savers have an additional limit of 25% international exposure. The Sharenet BCI Balanced Fund is a great option if you are looking for this type of fund. High Equity Balanced Funds are designed to grow capital over the long term while diversifying across asset classes to add more stability to returns. Investors with a moderate to aggressive risk profile, like those saving for retirement, are most suited to these funds. If you are looking for a step-by-step guide on how to invest for retirement then read our article on Saving for Retirement.

Funds in the High Equity sector usually don’t generate enough income for investors looking to periodically withdraw money. These investors can find cautious funds in the Medium-and Low Equity sectors that allocate more to income generating assets. The funds are typically used by investors who have already retired and provide more stability in returns with a constant stream of income.

Conclusion

There are multiple strategies used by balanced fund managers with a degree of asset allocation decisions faced by each fund. Some fund managers are very active when it comes to switching between asset classes like equity and cash while others prefer to stick to an allocation that does its job in delivering attractive returns over time.

There are mainly three types of balanced funds split into different risk categories (cautious, moderate and aggressive). Sharenet offers its clients a simple entry into one of these fund categories with its fund of funds range:

Cautious – Sharenet BCI Conservative FoF

Moderate – Sharenet BCI Moderate FoF

Aggressive – Sharenet BCI Aggressive FoF

Income Funds

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Unit trusts cater for almost any need and there is a whole category of funds dedicated to providing investors with income. This article looks at income funds and the ways fund managers invest to maintain a constant flow of payments.

Sources of Income for Funds

Income funds focus more on providing investors with strong levels of income rather than capital growth. The main source of income for income funds are interest and dividends. Interest income is usually received in the form of coupon payments received from bonds, debentures, notes, preference shares and money market instruments in the fund. The fund reinvests this income and then periodically distributes it to investors on pre-determined distribution dates that could be monthly, quarterly or semi-annually. These dates are available on the fund fact sheet (minimum disclosure document).

Income funds can also invest in property. Individuals often buy property as a source of income. The property is bought and then put up for rent to receive the monthly rental income. Income funds are no different and invest in property companies listed on the Johannesburg Stock Exchange. These listed property companies receive rental income from their property portfolios and also make profits from selling property. This income and profits are then paid out as dividends. Another group of property companies known as Real Estate Investment Trusts (REITs) have to pay out at least 75% of its income to shareholders. It’s important to note that the payments from REITs are taxed as income while dividends from listed property- and equity companies are subject to dividend withholding tax. Unit trusts will indicate how the income is split between interest and dividends.

Why Yield is Important

The yield of an investment is the rate at which you earn income on your investment. If you invested R10 000 in a fund and over one year the fund pays out a total of R1 000, then the yield of the fund is 10% (1 000 ÷ 10 000). Now why is it so important to know what your yield is on an investment?

The main objective of investments is to create wealth or at least to preserve it. The value of R100 today is certainly worth more than the value of R100 you will receive five years from now. That’s because money loses value or purchasing power over time due to inflation. A smart investor knows that to create wealth, you first need to beat inflation. The return on income funds is predominantly measured by its yield and this usually is an indicator of the income you can expect to receive from the fund over the next year. The yield of your investment should therefore be higher than inflation and this difference is known as the real return (or spread above inflation).

Investor Profile

Income funds are mostly used as the low-risk portion of a portfolio aimed at generating cash flow for the investor. Someone looking to cover day to day expenses with their investment should consider an income fund, as these funds generally pay out income monthly or quarterly.

Income funds offer investors a return that beats inflation (currently about 5.5%) with little variability in the return. Your money is also readily accessible and funds can be withdrawn within a couple of days, giving the investor liquidity in case of an emergency. This makes income funds an attractive alternative to bank savings accounts that normally offers lower returns, and fixed deposits that lock you in for a set term and offers lower returns. The time horizon for income funds is generally short term (shorter than three years) and longer term investors should consider adding growth assets to their portfolio to maximise return. If you are looking to save for a down payment on a house or that overseas holiday you have been promising yourself, then an income fund is a great option to consider.

The Sharenet Income Plus Fund offers investors the opportunity to invest in an income fund that has returned more than 9.40% over the past year to supplement your income or to help to make your dreams come true.