Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
5 burning questions
in uncertain markets
In the face of unprecedented global and local uncertainty, how can investors remain sanguine about investment prospects both in South Africa and offshore? At the series of client events Sanlam Private Wealth held recently across the country, our Director of Investments, Alwyn van der Merwe, addressed some of the most pertinent investor concerns that emerged at these lively sessions.
How negative could the impact of the US-China trade war be on South Africa in the run-up to the US elections?
It’s very difficult to quantify just how negative the impact is likely to be, but there’s no doubt that the dispute will have adverse consequences. Looking only at the direct implications, it will undoubtedly have a negative effect on the growth rate of the US – it’s likely to shave off between 0.5% and 0.75%. It will also have an impact on the Chinese economy. Since we’re in a mature phase of the global economic cycle, the Chinese economy may slow down faster than anticipated. China is the world’s biggest consumer of commodities, and since South Africa is a net exporter of commodities, it implies that commodity prices will come under pressure. The terms of trade – the difference between the cost of our imports and that of our exports – will be impacted, which won’t be good news for the South African economy.
How is the ongoing Brexit saga likely to affect the investment strategies of Sanlam UK?
The drama around Brexit, and whether or not (and how) the UK leaves the European Union shouldn’t have any impact on our global equity offering, which is managed by our highly experienced, award-winning equity team in London. It’s important to remember that a UK-listed share will only qualify for inclusion in the Sanlam Global Equity Fund if it meets our team’s extremely stringent requirements. Decisions are taken based on valuation and the quality of a business, and cash flow plays an important role. Where a share is listed geographically has virtually no impact on the team’s decisions. Based on our investment criteria, we currently have very little exposure to UK-listed shares in the fund.
Having said this, our UK team may well at some point start looking at some quality companies in the UK, especially if developments around Brexit drive valuations down to a point where they start to look attractive. We may then start to consider some of these for inclusion in the fund.
What’s your view on the possibility of prescribed assets being introduced in South Africa?
Prescribed assets aren’t new in South Africa. In fact, until October 1989 investors were forced to invest around 47% of their retirement fund savings in government bonds. The money is spent on government projects, including state-owned enterprises, that are more often than not sub-optimal from an investment perspective. We don’t believe the introduction of prescribed assets by government is going to happen any time soon. The debate will need to take its course but our view is that it will be aggressively opposed by business and investors, and most importantly, workers and their unions. There might also be constitutional challenges if government tries to push this through.
When will you start increasing exposure to listed property in clients’ portfolios?
Listed property was the worst performing asset class over the past five years – the entire property landscape is under pressure. However, whereas average yields were around 5% four years ago, they’re now up to 10% in some cases. So, from a valuation perspective, some shares are starting to look interesting to us. We’ll therefore start to evaluate the sector carefully and consider selected buying opportunities – we believe the sector is likely to remain under pressure, however.
It’s important to note that from a macroeconomic perspective, however, many of the listed property companies are facing severe headwinds and may therefore reduce their dividend payouts. So, while historic yields are looking attractive, future dividend payouts may be lower in an extremely tough environment.
Which three shares look interesting right now from a valuation perspective?
Mr Price: In the retail sector, we’ve been looking at Mr Price, which has a really strong balance sheet. The return on equity, which gives one an idea of the quality of the company, is around 35%, which is very high. We’d be comfortable if we could add to Mr Price at a 14 times price-earnings (P/E) multiple.
Bidvest: Another share we’re keeping an eye on is Bidvest. It’s certainly one of the better run companies in South Africa. Its profits have come under pressure as a result of the struggling South African economy, but the group’s plans to internationalise its service division should lessen its exposure to local realities. The share is currently trading at a 14 times forward P/E multiple – with a further decrease in price, we’ll definitely consider a buy.
See the separate article by Odwa Ngwane of the Sanlam Private Wealth investment team on this subject.
Aspen Pharmacare: This share is certainly worth looking at. It does have some balance sheet risk, but Aspen is now trading at a 6.5 times forward P/E multiple compared to 35 times not too long ago. The company should be able to solve its debt problem, and the expected earnings stream and cash generation are likely to relieve financial pressure. The immediate balance sheet risk is likely to remain concerning, however, so while the share looks attractive, we’ll be approaching it with extreme caution.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
We provide daily reporting of trades, monthly portfolio evaluations and annual tax reports to clients.
Riaan Gerber has spent 16 years in Investment Management.
Have a question for Riaan?
South Africa
South Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStarRest of Africa
Sanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth MauritiusGlobal
Global Investment SolutionsCopyright 2019 | All Rights Reserved by Sanlam Private Wealth | Terms of Use | Privacy Policy | Financial Advisory and Intermediary Services Act (FAIS) | Principles and Practices of Financial Management (PPFM). | Promotion of Access to Information Act (PAIA) | Conflicts of Interest Policy | Privacy Statement
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
MANDATORY DISCLOSURE
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
INVESTMENT PORTFOLIOS
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.