3 years ago

Blue Chip Journal - October 2019 edition

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FINANCIAL INCLUSION The iMadiba Project Satrix takes Madiba’s "circle of dialogue" to the JSE During his imprisonment on Robben Island, global icon Nelson Mandela encouraged honest debate, conversing in a circle in which every voice was heard, and discouraging polarisation and the elevation of an individual’s status above that of the rest of the group. It is this “circle of dialogue” that Satrix chose to take to the Johannesburg Stock Exchange. Satrix shares the principle of “access for all” “To the untrained eye an investment company is a world away from Robben Island but it’s the principles and the manner in which Mandela brought about change, wanting freedom and equality for all, on which Satrix builds to provide financial access for all,” says Helena Conradie, CEO of Satrix. Access for all and financial inclusion are maxims at the heart of the Satrix business, “and we at Satrix are proud to be the first corporate to sponsor and support Erhardt Thiel and the Nelson Mandela Foundation on their journey to roll out the iMadiba Project,” says Conradie. iMadiba celebrates Mandela’s legacy by creating safe spaces The iMadiba Project is a global art project that celebrates Nelson Mandela’s legacy through the promotion of conversation in safe spaces. To this end, three Satrix-sponsored cement installations echoing Nelson Mandela’s Robben Island cell have already been built at the JSE, the Iziko National Gallery in Cape Town and the Nelson Mandela Museum in Qunu. These cement structures exhibit the exact floor dimensions of Madiba’s Robben Island cell and function as interactive and participative art installations. The world’s largest museum for reflection and conversation The broad intention of the project is to create the world’s largest museum for reflection and conversation in Mandela’s honour by building micro museums throughout South Africa and the world. The iMadiba Project was conceptualised and created by Stellenbosch-based photographer and artist Erhardt Thiel. It was built in partnership with and in support of the Nelson Mandela Foundation. One of the aims of the project is to assist the foundation in its objectives of honouring Madiba’s legacy. It has been made possible through the support of sponsors, and the ongoing need is to find more sponsors as the project grows. The project also produces income for the foundation. 100 micro museums in Mandela’s 100th year The project has gained great momentum. To date, there are artist copies at several venues in Stellenbosch. Thiel used these sculptures, together with a similar one which was burnt in the Tankwa Karoo at AfrikaBurn, to test the final design. The next sculptures were built at Mthatha and Qunu in the Eastern Cape. Further sculptures can be viewed at the V&A Waterfront, Nelson Mandela Square in Sandton and in the grounds of St Stithians College in Johannesburg. Thiel hopes to expand the project to all schools in South Africa and erect at least 100 installations in Madiba’s centenary year, both locally and globally. In total 21 iMadiba sites have already been built, sponsored by various corporates, schools and individuals, each encouraging others to join a conversation for change close to their heart. Plans are currently underway for three more sites in South Africa, three in the US, two in South America, one in the UK and one in Berlin. From an oppressive, inhumane system to open conversation The micro museums are artistic recreations of Madiba’s Robben Island cell with bars and an open doorway signifying that the space is always open for conversation and reflection. People are invited to engage with the installations as the cold concrete, bars and cramped dimensions of the micro museum bring home the oppressive conditions which Madiba endured for so many years. Through this engagement, we will be reminded of the inhumane system that was in place, the work done in moving forward, and the work still to come. Satrix welcomes the conversation around financial inclusion “It is the spirit of listening and acceptance which has enabled Satrix to become The People’s Choice (SALTA 2018 and 2019), spreading the news that investing is for all and that everyone can invest. As the first corporate sponsor of the iMadiba Project we are pleased to have secured space at the Johannesburg Stock Exchange to erect a micro museum. To us, as a business, this represents an opportunity to continue the conversation of financial inclusion and access that is at the very heart of the financial system. We’d like to start a conversation here so that everyone knows that they too can own the market,” says Conradie. • 18

LIVING ANNUITIES Avoid value destruction Living annuities: why you might be giving up important growth For many South Africans, retirement comes without warning. Only then do they realise they have not saved enough to live the rest of their lives in peace and comfort. For those choosing a living annuity, the consequence is that investors scrutinise every percentage point of investment returns even more closely. When returns from the ASISA low equity sector fall below that of the income sector as we’ve experienced recently (see chart below), it is unsurprising to see large flows of capital into the income sector, both in terms of new money invested as well as transfers away from the low equity category. The chart shows the difference in rolling three-year returns of low equity versus income. As can be seen, in recent times the income category has dramatically outperformed. Although this has happened before and is bound to happen again, we would urge investors to consult a qualified financial planner to ensure their choices are consistent with their longer-term risk tolerance and investment goals. Over the past 15 years, for example, the average low equity fund has outperformed income, which has in turn outperformed the money market. As shown in the cumulative return chart above, the average low equity fund trumps its lower risk peers quite easily over the long term. So, is it a simple choice to just go out and invest in the highest risk product that you can find? Our previously published research shows that living annuity investors have historically stacked the odds in their favour when choosing higher risk funds. In other words, on average your capital has tended to last longer, or you would have been able to sustain a higher drawdown over the course of your retirement. The caveat, however, is that many investors are unable to emotionally withstand the volatility of returns that comes with taking more risk. While we view risk as the permanent loss of capital and not meeting your planned outcomes, it is also difficult to see your market values fall, no matter how small the quantum of the loss turns out to be. What is quite reassuring is that by extending your time horizon for performance measurement, you can minimise the chances of suffering loss. light green) versus the typical income fund (in darker green) for various time periods all the way up to 10 years. Our research confirms that income funds usually have a narrower range of returns than their low equity counterparts; however, they are also characterised by lower expected returns overall. In other words, income funds can usually provide better protection from short-term losses, but investors pay for that protection through lower long-term returns and should therefore be aware of the potential consequences of any switching decisions. Investors who initially made the wrong decision to invest in low equity and are now switching to income are likely making the correct decision for their needs. On the other hand, some investors could switch based on recent past performance which will no doubt be value destructive. While short-term returns are not at all predictable in advance, over time investors have typically received appropriately higher rewards for investing in riskier assets. Whether you choose to invest for your living annuity in an income fund or a low equity fund, it is important to carefully consider the reasons for your choice and how the expected risk and return profile fits into your emotional tolerance bands and longterm financial planning goals so as to avoid the enormous value destruction caused by ill-timed switching decisions. • The “funnel graph” above displays the range of returns for the typical low equity fund (in Anil Jugmohan, Senior Investment Analyst at Nedgroup Investments 19

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