Sharenet Blog

It is always interesting to note the returns of the different asset classes at the end of the month. The graph below illustrates the cumulative returns of the last 12 months of the Bond, All Share Equity, Listed Property and Cash indices. It was a surprise to the market how the listed property market has performed, especially over the last quarter.

The graph below illustrates the cumulative returns of the Global Bond, World Equity, Emerging Equity Markets and the Listed Real Estate indices in US dollars. It was no surprise that the emerging market outperformed the developed market over this period. Structurally the emerging economies are supported by stronger fundamentals.

During the recent six months we noted again the flight to “safety assets” (driven mostly by the US bonds). This resulted in a strong positive return by the Global Bond Index over this period.

The graph below illustrates the cumulative returns of some of the equity managers we track.

There has been quite a variation in the returns by the managers. This can be mostly attributed to their allocation resources, financials, and industrials and also to large, mid, and small companies. The graph below illustrates the relative performances of the three main sectors.

Naturally it is important to understand where you came from but more important where you are going to. This is true not only in life but also in investing.

Kind regards,

Vincent Heys
vincent@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966

Local markets

At midday on Thursday, rising gold mining shares led gains as the JSE edged up 0.24%, flattish after yesterday’s rally on upbeat global economic data.

The rand was trading at R7.26 to the US dollar just after 12:00, somewhat firmer after overnight levels and looking to the euro for direction.

A barrel of Brent crude oil cost $75.34 at noon, a gain of 0.60%, despite record high US inventories and caution before the release of employment data.

International markets

On US markets yesterday, the Dow Jones closed 2.54% higher and the Nasdaq 2.97% up. Investor sentiment improved after better-than-expected factory data from the US and China.

Japan’s Nikkei index finished 1.52% higher this morning, as US and Chinese manufacturing data continued to calm investor anxiety about the global economy.

Germany’s DAX had lost 0.02% by midday, on caution before the announcement of the European Central Bank interest rate decision and US home sales.

England’s FTSE 100 was 0.08% up, creeping back after earlier losses in miners on pessimistic Citigroup comments.

Share price news

Blue Label Telecoms Limited (share code: BLU) climbed 8.96% by midday to sell at R5.23 a share. Investors sold 27 379 948 shares in 804 deals.

Rising 3% to R42.25 a share was Northam Platinum, after 187 deals traded 236 813 shares.

Losing ground at noon was Brait SA (BAT) in the investment banks sector, whose shares fell 4.70% to R20.49 each. Investors exchanged 555 424 shares in 190 deals.

Dimension Data Holdings Limited (DDT) lost 1.61% after 26 deals totaling 579 973 shares sent the share price down to R13.45 at noon.

Local markets

On Wednesday, gains in basic materials shares led the upward movement of the JSE All Share, which had risen 1.35% by noon. Optimistic global sentiment helped to lift the local bourse.

The rand was selling at R7.35 to the US dollar, strengthening in line with the euro, as investors’ risk appetite rose.

Oil cost $74.72 per barrel at 12:00, rising 0.97% after news that Chinese manufacturing growth sped up in August.

International markets

Yesterday, the Dow Jones edged up 0.05% but the Nasdaq lost 0.28% after US markets experienced a volatile session’s trade.

In Japan, the Nikkei average closed 1.17% higher this morning, as the strengthening of the yen eased after a manufacturing rebound in China, and news of better-than-expected growth in Australia.

China’s Shanghai index dipped 0.6% despite manufacturing data that showed growth was stabilizing at a moderate but acceptable pace.

Britain’s FTSE 100 had risen 1.54% by midday, led by gains in mining stocks after firm economic data from China eased concerns about the health of global economic recovery.

Share price news

Country Bird Holdings Limited (share code: CBH) in the farming and fishing sector rose 8.70% to R2.50 a share, after 23 deals exchanged 175 060 shares by noon.

After 422 892 shares were traded in 126 deals, pharmaceutical company Cipla Medpro SA Limited (CMP) climbed 4.52% to sell at R6.47 a share.

In the hospital management sector, Litha Healthcare Group Limited (LHG) fell 9.09% to R1 a share, after investors sold 696 000 shares in 11 deals.

Redefine Properties Limited (RDF) lost 2.63% as 1 475 029 shares were traded in 335 deals, leaving share price down at R7.78 at midday.

The local market traded sideways for most of the day today, but then raced up by about 1.3% from 15:00 to close up 0.4% for the day. This leaves the market down 3.6% for the month and it is now relatively flat year to date (down 0.05%). The rand has weakened slightly during the month (by around 0.66% to the US dollar) most likely as a result of the rolling strike actions by the various unions, most notably the public servants’ strike. Year to date we find the rand flat against the US dollar.

Performance this year has been driven by the bond and property market on the back of foreign portfolio flows into South Africa and an inflation rate that has continued to surprise on the down side. The All Bond Index is up over 13% in 2010 while the SA Listed Property Index is up over 21% in the same period! Offshore assets have continued to disappoint, but continue to show better value than their local counterparts (with the exception of global – particularly developed market – debt).

Gold has been a solid performer – the New Gold ETF is up over 9% as investor demand for this ‘safe haven’ commodity drives up the price.

While benchmarking performance of asset classes and managers is an important part of the investment process, investors must be aware of how they interpret this data. It should be used as a process to show where you made good and bad decisions, rather than a process of where you should be making changes to your strategy. Investing is a long term game, and monthly benchmarking does provide its anomalies as explained below:

Anomaly: For equity unit trust investors who compare their funds’ returns to the market on a monthly basis, a movement this large after 3pm (when most unit trusts are priced) can have quite an impact on a manager’s monthly relative performance. This month the market rally in the last 2 hours of trading will provide a headwind for August returns, but investors must remember that it will also be an initial tail wind in September as the performance in the last two hours of today gets incorporated into tomorrow’s price.

Seed supports Eagle’s Nest Primary School, which is a school in Wallacedene (an informal settlement near Cape Town). Eric Simons and Gary Kirsten, two notable South Africans who have achieved success both as cricketers and as coaches, will be attending a Business Breakfast in support of Eagle’s Nest at Newlands Cricket Ground on 17 September. They will be sharing some of their experiences in the world of sport and how the lessons they have learned can be related to business. For more information on how you can join the Seed team at this event click on their invitation:
http://eagles-nest.org.za/business%20breakfast.pdf
or Facebook event:
http://www.facebook.com/event.php?eid=138874406147640&index=1

To access a range of fresh investment reports join Seed’s Facebook page by clicking here, or click here to follow us on Twitter.

It is apparently the first day of Spring tomorrow, being the 1st of September, but it seems as if Cape Town as usual will be joining the rest of the country a little later in the year.

Take care,

Mike Browne
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966

Local markets

At midday on Tuesday, losses in resource shares had led the JSE All Share down 0.96%. The local bourse also responded to negative sentiment on global markets, which were down on concerns about the economic outlook.

The rand was trading at R7.38 to the US greenback, weakening slightly as it followed movements of the euro.

Despite an increase in consumer spending data from the US, oil continued to lose ground, falling below $74 a barrel midmorning.

International markets

Yesterday saw US markets fall in the year's lightest volume after investors continued to worry about the pace of economic recovery, in spite of data showing an increase in consumer spending and income. The Dow Jones lost 1.39% while the Nasdaq fell 1.56%.

The Japanese Nikkei index closed 3.55% lower this morning, with sellers getting out of the market after the Bank of Japan’s efforts failed to slow the strengthening yen.

China's Shanghai index lost 0.52% led by losses in financial and real-estate shares, after anxiety over rising domestic inflation and the government’s latest promise of property tightening measures.

Britain’s FTSE 100 had given up 0.92% led by falls in banks and commodity stocks as investors continued to fret over the sustainability of global economic recovery.

Share price news

Top mover up at midday was IPSA Group Limited (share code: IPS), whose shares rose 11.83% to R1.04, after 6 677 shares were exchanged in 2 deals.

Ellies Holdings Limited (ELI) rose to R1.59 a share, a gain of 8.90% after 6 deals traded 87 955 shares.

Amongst the top movers downwards was Coal of Africa Limited (CZA), selling at R9 a share after 37 659 shares were exchanged in 19 deals, resulting in a share price loss of 5.26%.

Gold One International Limited (GDO) fell 5.13% to sell at R1.85 a share, after investors sold 132 000 shares in 3 deals by midday.

Local markets

At noon on Monday, basic materials and resource shares had led the JSE All Share up 1.61%, following US and Asian markets higher after positive comments from Fed Reserve Chairman Ben Bernanke on Friday.

The rand dipped marginally to R7.29 against the US dollar at midday, after concern that the public service strike might spread to the private sector.

Gold cost $1 234.80 an ounce, down 0.18% despite earlier gains. Investors were awaiting the outcome of important US employment reports for signs of economic health.

International markets

On Friday, both the Dow Jones and the Nasdaq climbed 1.65% after fairly optimistic comments from US Federal Reserve Chairman Ben Bernanke.

In Japan, the Nikkei average closed higher by 1.76% this morning, though pared earlier gains after a disappointing Bank of Japan decision.

News of mergers and acquisitions boosted European markets this morning, sending the CAC40 edging up by 0.09% and the German DAX higher by 0.17% around midday.

The British FTSE 100 was closed today for a bank holiday.

Share price news

In the computer hardware sector, Pinnacle Technology Holdings Limted (PNC) rose 5.87% to R4.87 a share, after 1 253 977 shares were sold in 43 deals. This morning, Pinnacle reported an increase in earnings per share of between 35% and 40% since their last 12-month statement.

Retailer Truworths International Limited (TRU) gained 3% after shares rose to R57.60 each at noon, after investors exchanged 665 117 shares in 460 deals.

Losing 4.17% was construction firm Esorfranki Limited (ESR), whose shares fell to R2.30 each after 25 deals traded 167 942 shares.

Gold One International Limited (GDO) lost 3.55% after 163509 shares were exchanged in 19 deals, sending the share price sliding to R1.90 at midday.

Local markets

At noon on Monday, basic materials and resource shares had led the JSE All Share up 1.61%, following US and Asian markets higher after positive comments from Fed Reserve Chairman Ben Bernanke on Friday.

The rand dipped marginally to R7.29 against the US dollar at midday, after concern that the public service strike might spread to the private sector.

Gold cost $1 234.80 an ounce, down 0.18% despite earlier gains. Investors were awaiting the outcome of important US employment reports for signs of economic health.

International markets

On Friday, both the Dow Jones and the Nasdaq climbed 1.65% after fairly optimistic comments from US Federal Reserve Chairman Ben Bernanke.

In Japan, the Nikkei average closed higher by 1.76% this morning, though pared earlier gains after a disappointing Bank of Japan decision.

News of mergers and acquisitions boosted European markets this morning, sending the CAC40 edging up by 0.09% and the German DAX higher by 0.17% around midday.

The British FTSE 100 was closed today for a bank holiday.

Share price news

In the computer hardware sector, Pinnacle Technology Holdings Limted (PNC) rose 5.87% to R4.87 a share, after 1 253 977 shares were sold in 43 deals. This morning, Pinnacle reported an increase in earnings per share of between 35% and 40% since their last 12-month statement.

Retailer Truworths International Limited (TRU) gained 3% after shares rose to R57.60 each at noon, after investors exchanged 665 117 shares in 460 deals.

Losing 4.17% was construction firm Esorfranki Limited (ESR), whose shares fell to R2.30 each after 25 deals traded 167 942 shares.

Gold One International Limited (GDO) lost 3.55% after 163509 shares were exchanged in 19 deals, sending the share price sliding to R1.90 at midday.

Local markets

At midday on Friday, the JSE All Share had lost 0.63% with losses across the board led by falling resource shares. The local bourse lacked direction and investors continued to worry about global economic recovery.

The rand had weakened by 0.95% and was trading at R7.35 to the US dollar at noon.

Gold had fallen 0.09%% to $1 235.60 at midday, as investors awaited US Federal Reserve chairman Ben Bernanke’s speech later today, and expected the release of a lower revised second-quarter economic growth figure.

International markets

Yesterday, the Dow closed 0.74% down, while losses in tech shares sent the Nasdaq falling 1.07% ahead of an expected downward revision in US economic growth for the second quarter.

The Japanese Nikkei average finished higher by 0.95% this morning, after investors sold super-long Japanese debt to buy shares, and on hopes for government action to ease the strong yen.

Germany’s DAX had slipped 0.03% while France’s CAC40 had fallen 0.36% by midday in SA, heading towards a third week of losses. Investors continued to fret about the pace of economic recovery after gloomy economic data.

Britain's FTSE 100 slid 0.16% by noon, as investors waited for the second release of second-quarter UK GDP, and Ben Bernanke’s speech later today.

Share price news

Retailer Massmart Holdings Limited (share code: MSM) rose to R121.65 a share at midday, a gain of 3.75% after 836 542 shares were traded in 2472 deals.

Esorfranki Limited (ESR) gained 2.13% to sell at R2.40 a share, after investors exchanged 112 154 shares in 34 deals.

Impala Platinum Holdings Limited (IMP) fell to R172 a share, a loss of 2.82% after 1 230 deals exchanged 807 725 shares by noon.

After 699 deals totaling 721130 shares, African Bank Investments Limited (ABL) dipped to R30.76 a share, a loss of 2.26%.

We often find ourselves quoting and reproducing GMO’s work, and for good measure. GMO is a privately held investment management firm founded in 1977, headquartered in Boston, USA, with offices worldwide. Several key factors in GMO’s success are: discipline, value orientation, investment research, and constant innovation. These are factors that we at Seed identify with, and it is therefore natural that we find value in much of their work.

As the company’s co-founder and chief strategist, Jeremy Grantham’s views are most often dissected, but James Montier, who forms part of the asset allocation team, is also an astute analyst. We find his views most thought provoking and he writes without fear or favour. His recent white paper on the importance of dividends is a case of point. I’ll take a few interesting pieces out of the report.

Initial dividend yield and the growth in dividends accounts for nearly 80% of total return over five year periods (based on US data since 1871). The remaining 20% or so comes from a change in valuation (i.e. re-rating or de-rating of the PE multiple). Conversely over a one year period nearly 80% of total return is determined by the change in valuation and the remaining amount is explained by starting dividend yield and dividend growth.

From the above chart it would logically flow that most investors would be concerned about dividends when making their investments. Unfortunately (or fortunately for those who follow this approach) many ‘investors’ are myopic in their focus on the next earnings figure for a company. As a result these ‘investors’ attempt to consistently profit from the change in valuation. This is an extremely difficult method to successfully follow as only those who can accurately predict next quarter/half earnings on a repeated basis AND who materially differ from the consensus number will profit from this method. The chart below show how the average holding period has dwindled dramatically over the last 50 odd years on the NYSE as investors take a shorter and shorter perspective.

James Montier goes on to point out that, in the derivatives market, European dividends are currently priced for a depression, which means that they are cheap if the region doesn’t experience a depression over the next ten years or so. Investors taking a longer term view are able to look through the current noise.

A further arrow in the ‘dividend quiver’ is that as companies are generally able to increase their prices in line with inflation, dividends are typically a good inflation hedge over a five year period. As inflation is probably the biggest enemy to a retirement portfolio, this characteristic is particularly attractive. The chart below shows how dividends and inflation move in line with one another.

Ultimately investors who truly have a long time horizon need to make sure that their portfolio contains companies that are priced attractively (good initial dividend yield), and will show good longer term growth (good dividend growth). This can either be achieved through selecting the shares yourself or using a portfolio manager who follows these principles.

Click here to access our Facebook page and let us know if you take dividend yield and growth into account when selecting your shares/portfolio manager.

Take care,

Mike Browne
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966

Local markets

Thursday midday saw the JSE All Share recovering 0.82% after yesterday’s losses, with resources leading gains as investors sought bargains.

At noon, the rand was relatively unmoved, trading at R7.28 to the US dollar while the euro and dollar rebounded.

Oil was selling at $73.69 a barrel, gaining 2.45% after it reached 11-week lows. Analysts said the underlying outlook was still bearish with sufficient stocks to cover any surge in demand.

International markets

On US markets yesterday, the Dow Jones edged up 0.20% while the Nasdag gained 0.84%, recovering after recent economic data triggered losses, as key technical support encouraged bargain-hunting.

Japan’s Nikkei average rose 0.69% this morning, ending a four-day losing streak after short-covering and a slight technical rebound.

Hong Kong's Hang Seng closed 0.11% lower, after China Life Insurance tumbled a day after it reported better-than-expected growth, as Citigroup and Credit Suisse cut the company's price targets.

Britain’s FTSE 100 had recovered 0.67% by midday after yesterday’s losses, on gains in mining stocks after the release of Kazakhmys's first-half results.

Share price news

Old Mutual PLC (share code: OML) rose 0.64% after 1 123 deals exchanged 4 756 415 shares, which saw the share price climb to R14.09 at midday.

After 1 983 465 shares were sold in 2 135 deals, MTN Group Limited (MTN) gained 1.91% as share prices increased to R119.23.

In the real estate sector, Fortress Income Fund Limited (FFA) fell 1.77% to R11.10 a share at noon, after 55 deals traded 7 000 000 shares.

Firstrand Limited (FSR) lost 0.16% after 1 397 deals totaling 3 365 705 shares, which saw the share price slide to R18.55.