Every investor has their own unique style when it comes to the rigorous decision-making process that goes into what to include in their portfolio and how to weight it. January, with the fresh perspective that comes from a break and a new financial year pending, is often the ideal time to take a look at investment decisions from a new angle.

One of the most useful ways to do that is the big picture look at trends affecting investing on a global scale.

This ‘seeing the wood for the trees’ approach can help with a far longer-term approach.

Here are some of the macro trends experts are saying will most affect investors in 2020 – and far.

Agitated agriculture

Climate change, the hot and bothered elephant in the room in most macrotrends analyses, continues to affect foresights by experts.

In PwC’s ‘Doing Business in Africa’ report, it was forecast that agricultural productivity throughout the continent could be reduced by as much as a third over the next 60 years due to climate change. This will be under even more pressure due to the fact that numerous experts have estimated the world’s biggest population growth for the next 50 years to unequivocally come from Africa. With less agricultural produce and more mouths to feed, what will happen for investors?

This is in direct contrast to the short view, outlined in the 2017/2018 PwC South Africa Agribusiness Insights Survey, which said that agribusiness drives 65 percent of Africa’s employment, with most bigger agribusiness CEOs forecasting a sunny 10 percent revenue growth for coming years.

To invest in agribusiness or not to? That is the question. It depends largely on an investor’s risk profile.

ESG excellence

One shorter-term upside for all this climate focus will likely be the continuing expansion and sophistication of ESG funds, perhaps into a formidable asset class in their own right. ESG has traditionally been seen as a ‘tree hugging alternative’ fund in SA, but has already seen a marked renaissance in the past six months.

However, the environmental ‘E’ sure to be emphasised with all this talk of climate change is likely to only further the ESG interest and value for savvy investors who are willing to look.

The rise and rise of pharmaceuticals

Less of a problem for the rest of Africa – but still a concern for SA – is the global ongoing trend in ageing populations getting older.

We are living longer, but often not living healthier. This has already led to an absolute boom in the frail care and pharmaceutical industries and this is showing no signs of slowing down. Shareholders of medical aids, established drug companies and private healthcare institutions like Netcare are still likely to be laughing all the way to the bank in 2025.

Tech takings

In October, tech thought-leader Gartner made an uncommon media appearance by announcing the findings of their 2019 CIO Survey and, as a result, their 2019-2020 technology trends, which they presented to government as the mostly likely to benefit public services in the next year or two and what their CIOs should look at investing in.

It provides valuable insights for the average investor too.

Startups specialising in digital identity protection software and ‘XaaS’ companies (software companies providing a generalist ‘anything as a service’ range of offerings through the cloud, paid for via subscription). The survey found that a significant 39 percent of government organisations say they plan to spend the greatest amount of any new funding on cloud services above anything else – which for investors means that this industry is ready to boom.

All of these pose attractive opportunities for the average investor, but remember that the savvy investor doesn’t only look at trends – they invest in what they know with the solid advice of a financial professional who knows what they’re doing.

Here’s to a good 2020!

In the last few months of the year the personal income tax season hangs over year-end busy-ness like a shroud. Then, the new year begins right away with business’ financial year end looming. The last thing most of us want to think about in January is more tax.

But really, January is the best time to start thinking about tax – when you are comparatively freshest, to give you the most time and preparation possible to make it less awful. And, if you are an investor, it’s not enough to simply cough up in 2020 – several things have changed in regulation and with Sars that may affect the way you are taxed.

After the Finance Minister’s February budget, investors breathed a sigh of relief. No one suspected another VAT change (there would have been an uproar) but dividend tax, capital gains tax and more remained largely unchanged.

However, the relief was bittersweet when the dust settled – the bracket creep that had plagued investors has not been acknowledged at all and so tax breaks were not adjusted for inflation as they usually are.

Even though on paper investors were not taxed much, the lack of inflation adjustment meant that, in reality, investors were getting an effective 2 to 3 percent less out of their investments thanks to tax not taking into account inflation.

The other most significant change for investors, which is less well-known, is the infamous 12J changes. Due to a promised upfront tax incentive for investors, those who invest in venture capital companies (the Section 12J investment class), investment into venture capital essentially doubled in one year – a significant boon for the country!

However, as of November, restrictions to the tax benefit were finalised and passed, meaning that the previously generous tax incentive – hovering at about 45 percent of the total amount invested in Section 12J funds – has been limited to a maximum of R2.5 million. So, only R2.5 million at the most can be invested into the class. If you were one of the higher income earners investing sums of that size into 12J, this obviously affects you. It also affects SME businesses that would have benefitted from the 12J class, the companies invested into by the venture capital funds, as there is now a limit on how much investors can put in.

All of this means slower growth for would-be venture capitalists and has already resulted in the asset class looking less attractive to local investors. If you are team 12J, proceed with caution.

Lastly, one for the petrol heads. Many investors took enthusiastic note of President Ramaphosa’s announcement of a new upcoming automotive special economic zone to be brought in soon to attract local and global investors with significant growth and benefits. However, the taxman has already been all over the development, with numerous (and quite punitive) anti-tax-avoidance measures being proposed, withdrawn and revised several times already in the draft Taxation Laws Amendment Bill. Those who wish to get involved better wait until the dust settles on this one.

Ultimately, tax is a jungle for most of us and it is well worth us having a chat to stay well within the law while still limiting the damage tax can place on your portfolio growth.

Swiss banks hold a certain cachet about knowing good from bad investments, and currently the hottest topic on their lips are ESG funds.

ESG stock options – or, rather, ‘Environmental, Social and Governance sustainability’ – have been steadily gaining traction among investors in the last few months, emerging into something of a buzzword.

Once considered a ‘hippie tree-hugging’ concept, ESG funds are having a moment in the sun (hopefully a sustained moment…). And, in December, they’re likely to have more of a moment still. After all, this is the season of charity and goodwill to all. Wouldn’t it be nice to ensure that our investments were in line with ethical corporate behaviour and preserving our planet?

But ESG investing is far more than just putting money behind nice people. It can make sound financial sense too, according to the big players.

Expert opinion

For Marriott’s Dividend Growth Fund, which has a solid track record, it’s less about ESG for ESGs sake and more about the fact that companies synonymous with sustainability practises and good governance tend to also have more solid predictors of success in the market.

“Marriott’s investment team monitors and reports on ESG issues on a regular basis. An area of particular importance to Marriott relates to company reporting and disclosures. Companies with a reputation for withholding important shareholder information will not be considered for inclusion in a portfolio as the future prospects of these businesses cannot be determined with a high degree of certainty. Companies which take advantage of ill-informed consumers are also immediately excluded, not only from an ethical standpoint, but also due to the unsustainability of exploitative business models. The Marriott team also carefully consider environmental initiatives undertaken by companies to ensure their products and future business prospects are sustainable.

“Studies have shown that companies which pay, and grow, their dividends tend to outperform the market over the long term. This is evident in the performance of Marriott’s local equity fund – the Dividend Growth Fund – which has won a number of awards for risk-adjusted returns,” said Marriott’s Robin Hartslief in a recent press release about ESG funds.

The charts below illustrate the dividend track records of some of the companies the Marriott Dividend Growth Fund currently invests in. As you can see, it pays to be the nice guy:

ESG in the rest of the world

Overseas too, the Financial Times noted this month that ESG tends to seriously outperform in some key areas. “ESG assets under management have grown the fastest among smart beta strategies, at a compound annual growth rate of more than 70 per cent over the past five years, according to a recent report from Bank of America Merrill Lynch,” it said. In Europe, Lipper EMEA Research noted that “we have witnessed an above average increase of assets under management driven by market performance. Additionally, a high percentage of the overall net inflows in the European fund industry are invested in mutual funds and ETFs with a sustainable investment approach.”

ESG funds offer exciting opportunities for investors. They are still a tiny portion of the market in SA with not much but the fact that they’re a buzzword known about them when it comes to the average investor.

Just like with any other change in investment strategy, this requires a comprehensive conversation before making any switches, but if you’re looking for new options – ESG funds could be a great addition to your portfolio.

December should be a time of peace, cheer and goodwill to all men. But, if you’re a South African investor, it’s the month that likely brings up residual trauma of some decidedly un-jolly happenings from recent years’ Decembers. Cabinet reshuffle. Nenegate. Steinhoff. What is it about the twelfth month of the year that turns the festive season into the silly season?

If you’re understandably nervous this time of year as an investor, fear not. While no portfolio is fireproof to completely uncontrollable events like black swans and major unforeseen global macroeconomic events (like the first 2016 Brexit referendum), there is a lot you can do to limit your exposure to market-affecting shenanigans on the home front.

Here are a few ways to ensure that your portfolio doesn’t go ‘ki Dezember’ crazy this month, if the markets do:

Manage your emotions

It’s amazing how simple logic is so easily questioned when the buying of Christmas gifts, expensive holidays, Black Friday remorse and seeing far more family and friends that we usually do all play into the mix. Against this highly emotionally charged backdrop people tend to behave a little irrationally. And, when it comes to investing, emotional = dangerous.

The age-old maxim of ‘buy low, sell high’ works for a reason. And, most of the year, you may well stick to it. In December, be aware that you may try to knee-jerk sell. Don’t do it. Unless a major macroeconomic event like the actual apocalypse is happening, let’s have a quick WhatsApp catch up or a short phone call to double-check the best options.

Cash is king – in context

You don’t get much more liquidity than cash. And in times of trouble or uncertainty, people opt for several versions of the old ‘cash under the mattress’ trick, like holding cash in a standard bank account or stocking up on Krugerrands.

Cash is an option, but it works best inside of a diversification strategy. Nothing short of a very well-proven crystal ball will help you move exactly the right thing at the right time to the right place. It’s about having all your assets in different places, different classes and with different levels of liquidity that will see you through.

Don’t make any sudden moves

When it comes to investing, always remember: any change costs something. A change when everyone else is pulling the same change (like investing offshore), is also expensive. Try not to suddenly pull huge lump sums out of equities and into a different class without it being in line with your long-term strategy.

A move like this, which may seem simple enough, could cost you five times: the price of the fee to pull money out of equities, the setup price of moving into bonds, the loss of momentum on your equities, the loss of any compounding you may have been about to tap into or eventually attain on your equities and the price of starting from zero in the new asset class.

Switching things up in your portfolio is sometimes necessary, but it must be done inside of a comprehensive strategy, not a panicked whim. When nearing the end of an investment term, it could be a good time to change your weighting in various classes and the diversification of your portfolio. Feeling scared watching the news is not.

Be commitment wise

Don’t get involved in something you don’t know well. December is often the time of year-end bonuses. Feeling jolly, you may think: ‘hey, why not try out Bitcoin?’

Unless you’ve been studying the market history, inner workings and headlines surrounding Bitcoin for more than a year, maybe give it a little more thought.

Many tried this back in 2017 when Bitcoin was trending and either lost all that irreplaceable, untraceable investment in a hacker’s spree or waited until December 2018 to find out it was worth 80 percent less.

Ultimately, investing always works best when you have a trusted, second opinion to every move you want to make. Either knuckle down and focus on the people around you and let your money work for you, or let’s get in touch and have a comforting cup of coffee to bolster your portfolio.

There is ample research to show that December is by far the most financially stressful time of the year for most people. Spending pressure is more emotionally charged than almost any other time of the year.

Luckily, December need not be all doom and gloom for your wallet. Like many situations that seem at first glance insane, it just requires a plan.

Here are our top tips to get you through the festive season without major money haemorrhage:

Step 1: Calculate exactly how much you’ve got

Unless you have it in writing or in your bank account, this does not include that Christmas bonus. This includes how much funds you have… until the end of January.

The trick to getting through December is not to just think up until the 25th but, rather, look at the fact that you will likely be receiving your next salary only 30 days after that. When do school fees need to be in by? What about buying back-to-school stationery with the same pay check that you will be using for present shopping?

While this may sound like a sure-fire way to get even more stressed about December, it’s the opposite. It allows you to cap your spending in December so that you still have enough for January.

Step 2: It’s the thought that counts

Little things add up when it comes to actual Christmas, and to the rest of ‘ki Dezember boss’ and ‘Januworry’ too. Try think of exactly what food and household items you’ll need to get you through both months and buy them in bulk. This follows on comfortably from the first tip – when you know how much you have to work with, you can be savvy with what you have.

Take a long hard look at your diary and consider investing, along with your family, time over the next few weeks to hand-craft what you can. That may mean homemade wrapping paper or less pies from Woolworths. Either way, it adds up.

Also, don’t underestimate the value of just asking someone what they want for Christmas. It may be a lot less expensive than the thing you were eyeing that you thought they’d love.

Step 3: Avoid December debt

Always try to avoid borrowing money to spend money. That includes December groceries and overspending on things you really don’t need or have space for. If you find yourself in serious financial straits, see if there is a temporary loan you can get from a loved one instead. Anything but bad debt.

Step 4: Put it away instead

It almost seems like money is made for spending when it comes to December, but if you have carefully budgeted, you might be able to have some extra cash to save.

Whether that means squirreling it into an emergency fund, topping up some of your investments or putting it into your retirement annuity, make sure it goes into a safe place. Unaccounted-for money has the tendency to disappear into mindless sending at the best of times, and December is the worst of times when it comes to that.

If you follow all of these tips, there’s no reason why you and your finances shouldn’t be more jolly this December. Ho ho ho!

People are often quick to comment on doom and gloom posts and add their voice, and with the current subdued economic outlook, there seems to be plenty to be grim about. But what if we looked at something, like inflation, and highlight a positive South African success story?

“… Inflation??” you cry.

Hear this out.

When people speak of inflation, it’s often the villain of the financial story. It’s blamed every time we swipe our cards to pay for goods and services, or look into our bank accounts when times are tight.
And why not? After all, the very concept of inflation is that our money is now worth a little less than it was before.

But, inflation is not that bad guy it’s made out to be. In fact, the lack of inflation can be far worse.

When inflation is bad

Most people confuse inflation with hyperinflation – an excessive amount of inflation in a short space of time. A classic example of hyperinflation is what happened to the Zimbabwean dollar. In first world countries, hyperinflation usually only happens in very dire circumstances (the German Deutschmark after WW1 comes to mind).

Inflation, on the other hand, is when the prices of things in a country go up moderately, usually three percent or less in one year. Just under two percent is considered typical.

When inflation is good

Inflation can be good for three kinds of people: savers, earners and investors. If you are simply spending all your money, inflation is undoubtedly negative in the short term. You can now afford less things than you could before. Inflation also does – in most cases – tend to trickle down to salaries as many employers aim to increase salaries on a regular or annual basis in order to compensate for inflation.

But if whatever you have isn’t likely to be spent any time soon, inflation can be a very good thing. To put it very simply, inflation is measured by economists as how much money is exchanged for goods or services in a country. This means that the money part of the equation increases in value.

If you have used that money to buy, for example, a house, then that house is now worth more than it was. Someone else wanting to buy it from you after an inflation hike would have to pay you more than you paid at first. This means that, for investors, inflation is great.

The world’s ongoing inflation woes

Global markets, particularly the US, haven’t had material inflation in quite a while. Risk of deflation has been talked about – more than a decade, in fact – and that is indeed very bad.

Deflation is what economists call ‘demand-pull inflation’ – when you have too much supply and not enough demand on goods. This happened to the property market in America in 2013 and, to a lesser extent, has just happened a couple of years ago in South Africa. House prices plummeted by as much as 30%, meaning that no one was buying. Why buy now, when you can wait a month and get an even better deal then? People couldn’t sell their houses without losing a lot of money.

South Africa and inflation

In contrast to elsewhere, South Africa has been relatively protected from inflation issues. We mostly hover around the four percent mark, with increases of less than two percent a year.

According to Investec: “during the past two decades, the significant swings in South Africa’s inflation rate have been driven to a large extent by exogenous shocks, mainly energy prices (international oil prices and domestic electricity tariffs), food prices and the exchange rate. More recently, inflation appears to be firmly under control… headline inflation has been within the target range of 3-6% since April 2017.”

Investec goes on to say that their “current forecast is for headline inflation to average 4.2% in 2019 and 4.6% in 2020, compared with the SARB’s forecasts of 4.2% and 5.1%. We expect core inflation to average 4.2% in 2019 and 4.4% in 2020. By historical standards, inflation is subdued, but not dead, and not without risks. We assess these risks, however, to be fairly balanced.”

This is quite different from other countries, whose inflation rates are well below that are starting to be a real concern.

(Source: Statistics South Africa and Investec Asset Management, as at 30.09.19. Investec Asset Management forecasts are from 01.09.19 onwards.)

They say to make hay while the sun is shining, but what about during overcast conditions?

The current outlook for SA investors is not as stormy as it was two years ago, but it certainly isn’t clear skies.

While we started the year filled with new optimism in a new president and the looming threat of state capture vanishing, other problems have remained. Thanks to Eskom, plummeting business confidence scores, policy uncertainty and a host of other factors, we haven’t quite seen the economic rally we hoped we would in 2019… 

Luckily, the best thing about markets is that when one thing slumps, another soars. Thanks to some rather unexpected material de-rating, lucrative equity options that were previously high-priced are now more affordable. This is not to say that you should jump ship, not at all! It’s merely evidence of how we can find alternatives in a market that may have us feeling a little confounded.

Mr Price Holdings

In the face of equivalents like Truworths, Mr Price Holdings has shown ongoing rallying in the face of tough conditions – and, right now, the price is appealing to many investors. According to Cannon Asset Managers’ Chief Investment Officer, Samantha Steyn, “the current valuation is attractive, with a P/E multiple of 13.3 times and dividend yield of 4.6 percent – as compared to its historical five- and ten-year average P/E multiples of 21 and 20 respectively.”

Multichoice

Despite competitive rumblings from the likes of Netflix muscling in on DStv’s territory, MultiChoice is going strong. “The current price (around R120 per share) offers an attractive entry point into this high-quality investment. The group has operational leverage thanks to several cost-optimisation strategies, as well as the ability to grow market share in the middle and mass markets,” says Steyn.

And with sports being MultiChoice’s main drawcard still and the Rugby World Cup having received a lot of viewers, this quarter’s figures will likely be even better.

RMB Holdings

Arguably the most exciting opportunity right now is FirstRand giant RMH, normally well out of reach individual investors. Steyn says that “RMH’s discount to net asset value (NAV) is currently around 11 percent, thus offering an attractive investment into FirstRand. This compares to the three- and seven-year average discounts to intrinsic value of 6.8 percent and 3.3 percent respectively.”

Unlike MRP Holdings and MultiChoice, there have been no big uncertainties shaking the price here, and FirstRand has had a cracker of a year so far, well in line with a recent track record of several stable, good years in a very unstable time. The current price-earnings (P/E) multiple is 12.8 times, with an attractive dividend yield of 4.6 percent. And with FirstRand’s ROE projected to be around 22 percent, this promises to be a very good deal indeed.

These are just three examples and far more exist for us to consider in the face of restlessness or looking for new opportunities. It just goes to show that you don’t have to wait for the sun to be shining to make some hay.