1 year ago

Blue Chip Issue 80

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  • Fintech
  • Technology
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  • Schroders
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  • Momentum
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Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.

On the money Making

On the money Making waves this quarter Diversification to the defense | Sanlam Benchmark: Covid impacts uncovered The case for diversification has never been stronger Diversification rests on the ability to minimise overall risk towards portfolio returns by combining a set of assets that interact with each other in an opposing manner. This characteristic becomes vital when things go haywire, because the resistance of the defensive assets would, to a certain degree, offset the losses introduced by cyclical assets. Effective diversification thrives in an abundant set of available investable assets. Being able to invest in local offerings such as South African equities and bonds, as well as offshore offerings like developed market bonds and emerging market equities, allows investors to get closer to this diversification objective. The various asset classes not only offer interesting interactions, but the distinct fundamentals prevalent in the various regions also have a unique effect on the performance of the various asset classes. South African bonds continue to offer a good value case. Not only are they attractive from a real yield perspective, but they also offer good value from a relative perspective; given that the relative yield of South African bonds in relation to US bonds remains attractive. It therefore means that carry trade premia can be attained with limited duration and credit risk. It’s clear that numerous assets offer a great overall value proposition over the short to medium term. In these uncertain times, it’s best to stick to the basics and apply methods that have been tested over years to offer value in tough conditions. Portfolio diversification across asset classes is one of those methods and a diversification of investment theses is another. Combining these two sources of diversification ensures that we don’t reach hard conclusions and run portfolios with a balanced mix of assets. When applied correctly, it has proven to be a veritable gold mine through both the worst and the best of times. Vanessa Mabophe, Quantitative Analyst, Prescient Investment Management COVID-19 AND THE RETIREMENT INDUSTRY The recent Sanlam Benchmark Survey unpacked the deep impact that Covid-19 has had on the retirement industry, with 27% of standalone retirement funds and 41% of umbrella funds employers having suspended retirement fund contributions last year. This resulted in an average suspension across all fund types of 4.5 months. “Tragically, 7% of stand-alone funds are in the process of liquidation and no less than 40% of funds and employers have shared with us that their staff or members experienced a reduction in pay. A total of 27% of stand-alone funds and 31% of participating employers cited retrenchment at the workplace,” says Kanyisa Mkhize, chief executive officer at Sanlam Corporate. Regulation 28 amendments Over the years, the research covered some of the broader investment themes, namely Regulation 28, transformation and ESG. The study looked at attitudes to infrastructure investments. Stand-alone retirement funds anticipated investing 6.6% of their assets, on average, in infrastructure while umbrella funds anticipated only 4.7%. Fund consolidation accelerates The consolidation of stand-alone funds into umbrella funds accelerated during the pandemic with the FSCA reporting 1 500 active registered funds in 2020, well down from 16 000 in the early 1990s. At 94%, it is safe to say almost all stand-alone funds had trustee endorsed strategies in place; among umbrella sub funds, a slightly smaller proportion (85%) had such strategies. It was surprising that there were funds that reported not having such strategies given that legislation requires trustee-endorsed strategies to be in place.

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