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This is the Sharenet company blog where we will bring you the latest news and events on the go at Sharenet, together with tips on using our site and our products.

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    Seed Weekly - An Epic Retirement

    My recent experience of completing the Cape Epic has highlighted a number of parallels between the journey to complete the Epic and the journey to retire comfortably. The first similarity is that both endeavours require a detailed plan. When planning for the Epic, we had to plan training programs, nutrition programs, assess our goals, hire support for the race and plan our strategy. When planning your retirement, it is imperative that both Husband and Wife have the same goals and expectations regarding retirement. Lifestyle risk is probably one of the most important risks that we face at retirement. Lifestyle risk is the risk that we will not be able to start at or maintain the lifestyle that we are accustomed to when we reach retirement. Unfortunately, lifestyle risk is affected by a number of factors some people start saving too late, some people don’t save enough and sometimes people don’t have high enough investment returns. All of these factors have an influence in how comfortably we can retire.

    Retirement, like the Epic, also can have a longevity risk in the Epic if you take too long, you run out of time and they cut off your number board, in retirement, whilst less dramatic, out-living your capital can have disastrous consequences, this risk has been exacerbated by the number of people taking early retirement and a general increase in life expectancy.

    One of the biggest risks in the Epic was the effect of accumulated exhaustion forcing you to abandon or make a stupid mistake. In retirement, the enemy is inflation and the accumulative effects of inflation over a long time (remember that a number of people are in retirement in excess of 30 years).

    In life like in the Epic, unexpected things happen and we need to prepare as much as possible, but sometimes we just need to roll with the punches. If you have prepared properly you can overcome a number of unexpected problems. As seen with the recent cabinet reshuffle, life will throw us many curve balls - we need to have a plan that will roll with these punches and ensure the best possible chance of reaching our goal of a comfortable retirement.

    Kind regards,

    Barry Hugo

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za
    Website www.seedinvestments.co.za

    Permalink2017-04-28, 10:46:02, by Mike Email , Leave a comment

    Seed Weekly - An Epic Retirement

    My recent experience of completing the Cape Epic has highlighted a number of parallels between the journey to complete the Epic and the journey to retire comfortably. The first similarity is that both endeavours require a detailed plan. When planning for the Epic, we had to plan training programs, nutrition programs, assess our goals, hire support for the race and plan our strategy. When planning your retirement, it is imperative that both Husband and Wife have the same goals and expectations regarding retirement. Lifestyle risk is probably one of the most important risks that we face at retirement. Lifestyle risk is the risk that we will not be able to start at or maintain the lifestyle that we are accustomed to when we reach retirement. Unfortunately, lifestyle risk is affected by a number of factors some people start saving too late, some people don’t save enough and sometimes people don’t have high enough investment returns. All of these factors have an influence in how comfortably we can retire.

    Retirement, like the Epic, also can have a longevity risk in the Epic if you take too long, you run out of time and they cut off your number board, in retirement, whilst less dramatic, out-living your capital can have disastrous consequences, this risk has been exacerbated by the number of people taking early retirement and a general increase in life expectancy.

    One of the biggest risks in the Epic was the effect of accumulated exhaustion forcing you to abandon or make a stupid mistake. In retirement, the enemy is inflation and the accumulative effects of inflation over a long time (remember that a number of people are in retirement in excess of 30 years).

    In life like in the Epic, unexpected things happen and we need to prepare as much as possible, but sometimes we just need to roll with the punches. If you have prepared properly you can overcome a number of unexpected problems. As seen with the recent cabinet reshuffle, life will throw us many curve balls - we need to have a plan that will roll with these punches and ensure the best possible chance of reaching our goal of a comfortable retirement.

    Kind regards,

    Barry Hugo

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za
    Website www.seedinvestments.co.za

    Permalink2017-04-28, 10:45:08, by Mike Email , Leave a comment

    Seed Weekly - An Epic Retirement

    My recent experience of completing the Cape Epic has highlighted a number of parallels between the journey to complete the Epic and the journey to retire comfortably. The first similarity is that both endeavours require a detailed plan. When planning for the Epic, we had to plan training programs, nutrition programs, assess our goals, hire support for the race and plan our strategy. When planning your retirement, it is imperative that both Husband and Wife have the same goals and expectations regarding retirement. Lifestyle risk is probably one of the most important risks that we face at retirement. Lifestyle risk is the risk that we will not be able to start at or maintain the lifestyle that we are accustomed to when we reach retirement. Unfortunately, lifestyle risk is affected by a number of factors some people start saving too late, some people don’t save enough and sometimes people don’t have high enough investment returns. All of these factors have an influence in how comfortably we can retire.

    Retirement, like the Epic, also can have a longevity risk in the Epic if you take too long, you run out of time and they cut off your number board, in retirement, whilst less dramatic, out-living your capital can have disastrous consequences, this risk has been exacerbated by the number of people taking early retirement and a general increase in life expectancy.

    One of the biggest risks in the Epic was the effect of accumulated exhaustion forcing you to abandon or make a stupid mistake. In retirement, the enemy is inflation and the accumulative effects of inflation over a long time (remember that a number of people are in retirement in excess of 30 years).

    In life like in the Epic, unexpected things happen and we need to prepare as much as possible, but sometimes we just need to roll with the punches. If you have prepared properly you can overcome a number of unexpected problems. As seen with the recent cabinet reshuffle, life will throw us many curve balls - we need to have a plan that will roll with these punches and ensure the best possible chance of reaching our goal of a comfortable retirement.

    Kind regards,

    Barry Hugo

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za
    Website www.seedinvestments.co.za

    Permalink2017-04-28, 10:44:59, by Mike Email , Leave a comment

    Seed Weekly - Investment Choices

    The answer is, “It depends, but probably a Balanced Fund…”

    Over the past few years, South African investors have generally been disappointed with their investment returns – and rightly so. Asset class performance has been lacklustre across the board and investors would have needed to do something ‘special’ (read – risky) in order to generate satisfactory returns. As such, many investors now want to put their investment savings into cash or cash like investments. The line of thinking is that cash is low risk (i.e. low chance of losing capital) and will provide returns in line or close to what balanced funds have delivered over the last couple of years.

    While cash/very low risk investments do have their place in a portfolio, especially where an investor has a short term savings goal, it is important to ensure that the overall portfolio allocation matches the investor’s investment requirements. For most investors, the bulk of their investments will typically be used to service their income needs in retirement, these investors will therefore have an investment horizon of 5 years plus on the bulk of their assets (even most investors IN retirement will require their savings to last longer than 5 years).

    It is therefore interesting to stress test how a ‘5 year horizon strategy’ would have performed over the 2008/9 financial crisis/market crash, which is widely acknowledged as one of the most severe of all time, versus cash. For the purpose of this exercise I have taken the performance of the four largest (most popular) balanced funds in South Africa (funds that sit in the ASISA South Africa Multi Asset category) over the full range of 5 year periods that incorporated the market crash (i.e. 31 May 2008 – 28 February 2009) and compared their performance to what an investor would have received from cash (in both cases before any tax effects – which generally has a greater impact on cash). For completeness sake, this incorporates rolling 5 year periods from 28 February 2004 – 28 February 2009 to 31 May 2008 – 31 May 2013.

    When looking at all of the rolling 5 year periods it is evident that these managers have done really well versus cash (STEFI Call). Two managers managed to outperform cash in all rolling periods and the other two outperformed cash 98% of the time (even the average manager outperformed nearly 70% of the time). The chart below illustrates this fact. It is also interesting to note that even with the market crash as part of the observation period these funds in some cases were able to deliver returns in excess of 15% pa and in most cases in excess of 10% pa.

    Source: Morningstar 18 April 2017

    While it is all good and well to look at the performance after the full period and recognise that it would be a good idea to remain invested through the market stress, it is a much different story in the heat of the moment, i.e. during the market turmoil. I have therefore taken each of the above rolling 5 year returns and shown their return path. This chart (below) gives some sense of the range (208 possibilities) of investor experiences along the way to getting a 5 year annual return of slightly less than cash to a return in excess of 20% pa by investing in a balanced fund.

    Source: Morningstar 18 April 2017

    To simplify, I have then taken the best, worst, and the middle (median) return from the above and compared these to the same range for cash. As can be seen below, in the worst case scenario an investor into a balanced fund could have experienced a drawdown of 20% over a period of nearly 1.5 years, still been negative after nearly 2.5 years, and only overtaken the worst cash experience right at the end of the 5 year period! More realistically, the average fund investor would have generated a return some 4% pa better than the average cash investor, despite investing through the 2008/9 crash! It is also evident that an investor with a shorter investment horizon (i.e. 1 year or 3 years) should probably be investing into a lower risk option – potentially even cash!

    Source: Morningstar 18 April 2017

    A bell doesn’t ring at the top of the market, and no one has a crystal ball. For MOST investors it therefore makes sense to match their investment strategy (should ideally be invested into a well-diversified multi asset Fund) with their investment horizon and REMAIN invested through the various market cycles. As has been shown, the opportunity cost of giving up strong returns by moving to cash is generally MUCH higher than the cost of being invested at the worst possible time.

    Take care,

    Mike Browne

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za

    Please click here to view our disclaimer. For more information please visit our website.

    Permalink2017-04-19, 13:04:57, by Mike Email , Leave a comment

    Seed Weekly - First Quarter 2017 Update - Multi-Asset Funds

    The year started on a positive note for investors with assets positive over the first quarter, albeit through volatile markets. Local politics again was a major talking point, particularly at the end of the quarter when the cabinet reshuffle led to a fallout and subsequently a credit ratings downgrade to sub-investment grade.

    Ian covered the implications of the credit ratings downgrade for investors in his article last week (view article), and further discussed the importance of Multi-Asset Funds in such times. These funds offer diversification benefits through exposure to different asset classes, which helps to soften the blow in volatile markets. Part of our philosophy is managing risk and, as such, Multi-Asset Funds are a key area of focus for Seed.

    Asset Class Performance First Quarter 2017

    Figure 1: Local Asset Class Performance

    Source: Morningstar Direct (11 April 2017)

    In spite of the elevated risk levels within the markets, investors enjoyed a fairly good start to the year with the various asset classes ending positive. The politics-induced turmoil at the end of March was not enough to counter the gains over the quarter. Equity was the top performing asset class, the FTSE/JSE All Share Index gaining 3.8% over the quarter. Listed property had the weakest quarter while bonds fared better, benefiting from Emerging Market flows, although understandably slumping at the end of March on politics.

    Seed Balanced Fund

    Fund Launch : 04 June 2010

    Our flagship fund, the Seed Balanced Fund, had a good quarter delivering top quartile (Top 25%) performance relative to peers in the ASISA South African Multi-Asset High Equity category. Figure 2 below illustrates that on a rolling 3-year basis, the Fund has protected capital and outperformed the average of the peer group all of the time since inception (46 out of 46 times). The rolling outperformance has been consistent with the Fund ranking in the top half of the funds 91% of the time, and top quartile 63% of the time. The long-term outperformance is a result of running a diversified portfolio comprising carefully selected uncorrelated strategies which complement each other well.

    Figure 2: Seed Balanced Fund 1 Year Rolling Performance relative to Peers

    Source: Morningstar Direct (11 April 2017)

    Seed Stable Fund

    Fund Launch : 09 January 2012

    Over the quarter, the Seed Stable Fund also delivered top quartile performance relative to peers. Figure 3 below illustrates that on a 1 year rolling basis, the Fund has outperformed the average of the peer group 86% of the time (42 out of 49 times). The Fund has protected capital well and ranked in the top half of funds within the ASISA South African Multi-Asset Low Equity category 82% of the time, and 59% in the top quartile. The Fund has also benefitted from carefully selected uncorrelated strategies to manage risk and deliver outperformance.

    Figure 3: Seed Stable Fund 1 Year Rolling Performance relative to Peers

    Source: Morningstar Direct (11 April 2017)

    A long term multi-asset strategy is essential for investors, especially in volatile times when risk is elevated. There are numerous Multi-Asset categories to choose from, and this is a key area of focus for us. We express our best ideas in our portfolios which comprise appropriate uncorrelated strategies, blended together to minimise the risk while optimising returns for investors.

    Kind regards,

    Tawanda Mushore

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za

    Please click here to view our disclaimer. For more information please visit our website.

    Permalink2017-04-12, 09:35:30, by Mike Email , Leave a comment

    Seed Weekly - Downgrade of South Africa’s Foreign Currency Rating

    Click here to download printable version

    On Monday, rating agency S&P Global downgraded its rating of South Africa’s long term foreign currency debt to sub-investment grade, commonly known as junk. The rating is now at a BB+. They also have a negative outlook, which means that on their upcoming reviews there is the possibility of a further notch downgrade.

    The local currency rating was lowered one notch to BBB-, which is one notch above sub-investment grade.This also is on a negative outlook. We can expect other rating agencies, i.e. Moody’s and Fitch, to follow suit with ratings downgrades.

    What does this mean?

    Essentially, a downgrade in the rating is an assessment of the increased risk in government being able to meet its fiscal and growth targets, given what S&P described as “policy continuity risk”.

    Any borrower who has a substandard credit record can expect to be charged a higher interest rate on borrowings. The same rationale extends to the South African government and all state-owned enterprises. The increased risk, as quantified by a rating agency, ultimately means that investors (i.e. lenders) will demand an additional premium (i.e. higher interest rate).

    Bond yields on government bonds have been pricing in this additional risk for some time, but on Tuesday morning, the R186 government bond, having closed at a yield of 9% on Monday, fell to a yield of around 9.2% before edging back to around, and indeed below, the 9% level.

    The currency also fell from around R13.50/USD at 5pm to over R13.70/USD, strengthening back again in late Tuesday to around R13.55/USD.

    In the short term and indeed over the longer term, the mere fact that government has a weaker rating on its debt is a negative for the economy as a whole because the cost of its debt is higher. This additional cost is ultimately paid by taxpayers.

    What does this mean for investors in multi managed, multi asset funds?

    We believe that given the level of uncertainty, one of the best options for all investors to consider is a balanced fund. Outlined below is a table reflecting the various asset classes in which the Seed Stable and the Seed Balanced are invested.

    Column 2 indicates the overweight or underweight position of the fund. Column 3 indicates the short-term performance (positive, neutral or negative) of Monday’s downgrade decision on these asset classes for local investors.

    Source : Seed Investments – 5 April 2017

    Some further considerations

    The table above reflects that despite the downgrade on the rating, this is not negative for all asset classes. Naturally, as the currency weakens, the result is positive for global investments, range hedge local equities, gold etc.

    While the higher cost of debt is negative for taxpayers, for investors the additional interest rate incurred by government on its debt at times more than compensates for the additional risk, and where this is the case, investors would be wise to take advantage. Such was the case for the whole of 2016, where investors in government debt enjoyed a 15.4% gain on their investment. At the same time, foreign investors received a gain as the local currency appreciated from the exceptionally weak January 2016 level.

    Conclusion

    Investors have typically done well over the past 3, 5 and even 10 years by investing into a balanced fund, such as the Seed Balanced Fund or a multi asset lower equity fund, such as Seed Stable Fund, which exposes the investor to a range of asset classes.

    The same is likely to be true in volatile times that we are facing at present.

    Kind regards,

    Ian de Lange

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za

    Please click here to view our disclaimer. For more information please visit our website.

    Permalink2017-04-06, 10:54:01, by Mike Email , Leave a comment