JULY 2020

Dear Investor,

On 9 August 1956, more than 20 000 women from all walks of life united in a mass demonstration to the Union Buildings in Pretoria. They protested against the unjust pass laws enforced on women in South Africa. In remembrance of what South African women achieved on that day, 9 August has been declared as National Women’s Day and is a public holiday and August Woman’s Month.

Our “View of the Month” picture is to pay tribute and honour to the woman of South Africa. We request our readers to celebrate woman and to be thoughtful about gender parity and the need for greater gender equality. We request our readers to fight the scourge of gender-based violence which has been heightened as result of the Covid-19 pandemic.

In this month’s newsletter we cover the following topics:

  1. Asset allocation
  2. Capital protected investments
  3. Rand forecasts
  4. Oil tanks feedback
  5. ETF Portfolios feedback
  6. Share-based loans
  7. Fuel prices
  8. Market stats summary
  9. Financial indicators
  1. Asset allocation

Asset allocation is arguably the most important decision with regards to your investment portfolio. Below slides from Coronation, Stanlib and Ninety One asset managers indicating their current preferred asset allocation:



Ninety One:

It is clear from the above asset allocation slides that global equity is currently the asset manager’s preferred asset class. The main reason for this is because of the massive amounts of quantitative easing (QE) and liquidity, which developed countries can inject into their markets to overcome the impact of the Covid-19 pandemic. In contrast, emerging countries like South Africa will lag the developed countries and it is going to be a case of “those who’s got, will get”. This is nothing new with research indicating the Great Financial Crisis (GFC) of 2008 also led to developed countries being wealthier post the crisis compared to emerging countries.

Even though not their favourite, local equity is also popular amongst the asset managers with Coronation indicating it’s expected return for the next decade is between 8% and 12%. It is important to remember that between 60% and 70% of the local Top 40 earnings are derived offshore and it therefore make sense that local equity should be a popular asset class for the asset managers. Ninety one however states that even though SA equities are cheaper, stock selection is key and we remain more invested in stocks that just happens to be listed here, i.e. Rand hedges.

Another favourite is our local bonds which offers very attractive yields between 9% and 10%. Listening to webinars by the asset managers it however becomes evident that local bonds are priced according to their risk. Further credit rating downgrades are on the cards and there is an increased market concern that South Africa may be heading for a debt default in the next couple of years. This explains the steepening yield curve in the longer-end bonds. The ANC’s developmental state ideal and SA’s economic success remain mutually exclusive. The political will to implement much needed structural reforms and austerity measures is also absent. A marked decline in tax collections as a result of the Covid-19 lockdowns is contributing to this dilemma.

The SA prime interest rate is currently 7% after it has seen five interest rate cuts (totalling 3%) from the beginning of this year. While this is good for borrowers (people with home loans and other debt), “cash is not king” anymore for savers or conservative investors who make use of cash-like investments. The cutting of interest rates by central banks in an effort to stimulate their economies during a shock is nothing new, we saw the same during the GFC. The sad reality is that post the GFC, interest rates remained low for at least 5 years between 2010 and 2015. During this time, cash investors and savers saw negative real returns where the interest they earn on their cash were lower than inflation. Cash investors therefore face a real dilemma and would have to take on more risk in their portfolios in order to stay ahead of inflation.

So how do we apply the above asset allocation preferences in our investment portfolios? In discretionary portfolios it is easy and investors are recommended to stay the cause with global and local equity exposure. For compulsory money (pension) where the asset allocation is prescribed by Regulation 28 of the pension fund act, it is not that easy. Here we would recommend investors to take their allowable 30% offshore exposure in the form of equity. The remaining 70% can then be allocated to a combination of local equity and multi-asset income funds which has little exposure to SA government bonds.

  1. Capital protected investments

A suggestion for conservative investors stuck with “cash is not king” dilemma is to make use of capital protected investments. The logic behind these investments is that we agree markets have been sold off drastically and that history has shown there is a good chance of recovery in future. The problem is however that it is going to be a very bumpy and volatile recovery. The capital protected investments removes this volatility for the investor while protecting their initial capital. Below a list of popular capital protected investments available to Vista Wealth clients in the month of August’20:

Issue date Max term Issuer Investment description Underlying Investment vehicle Currency Protection and payoff
31-Aug-20 5Y ABSA Global Growth Basket
A minimum Participation Rate of 110% in the positive returns of the Index, uncapped
Credit Suisse Global Equity Multi-Factor 10% Risk Control index Glacier International USD 100% capital protected
11-Aug-20 5Y ABSA Global Fixed Return and Growth Protector – HL29 (3/5) – No tax:
50% – 17.7% fixed return for 3Y
50% – Global developed equity markets
Credit Suisse Global Equity Multi-Factor 10% Risk Control (ER) Index Endowment Assessed loss – AIMS LISP ZAR 100% capital protected
11-Aug-20 5Y ABSA Global Fixed Return and Growth Protector – HL29 (1/5) – No tax:
50% – 5.5% fixed return for 1Y
50% – Global developed equity markets
Credit Suisse Global Equity Multi-Factor 10% Risk Control (ER) Index Endowment Assessed loss – AIMS LISP ZAR 100% capital protected
12-Aug-20 5Y ABSA Twin Fixed Return and Growth Protector – Issue 15:
25% – 11.15% fixed return for 1Y
25% – 22.30% fixed return for 3Y
50% – Global developed equity markets with 1.5 gearing
Any positive equity performance will be exposed to the ZAR/USD exchange rate
Credit Suisse Global Equity Multi-Factor 10% Risk Control (ER) Index Share Trading Acc
ZAR 100% capital protected
31-Aug-20 6Y Causeway BNP Paribas 6Y Autocallable Note:
Autocall observation @100% at end of Y3/4/5/6
ZAR Coupon of 17.5% p.a. (with memory)
Euronext Eurozone ESG Leaders (ESGEZ) Index Share Trading Acc ZAR If index < 30% at maturity, capital not protected
18-Aug-20 5Y Investec Autocall from Y3:
Autocall observation @100% at end of Y3/4/5
ZAR Coupon of 10% p.a. (with memory)
Environmental World Index Share trading account ZAR 100% capital Protected
Index measured in index value
14-Sep-20 5Y Investec Autocall from Y3:
Autocall observation @100% at end of Y3/4/5
USD Coupon of 8% p.a. (with memory)
S&P 500® Share trading account ZAR If index < 40% at maturity, capital not protected
Return measured in USD
07-Aug-20 5Y Momentum Momentum Enhanced Growth Option (MEGO)
15% secured return at the end of term
15% participation threshold
250% participation
BNP Paribas Multi-Asset Diversified index Momentum LISP ZAR 100% capital protected with 15% secured return at the end of term


  1. Rand forecasts

Market concerns over the future strength of the US economy’s recovery have increased safe haven flows into the US dollar, causing dollar strength and so exacerbating the weakness in the Rand to R17.20 as we pen this note. Just under two weeks ago the rand reached R16.34/USD, with the highly volatile domestic currency benefiting from US dollar weakness at that time, as yield-seeking stimulated by US QE has benefitted EM currencies and weakened the US dollar. Concerns over global growth, led by worries over US led events (including the resumption of US-Sino tensions, lack of extension of the $600 per week checks to households and degree of drop in the US Q2.20 GDP), have since boosted demand for US dollars and weakened demand for EM currencies, with the Rand particularly sensitive to these flows.

Investec regularly publishes their forecasts for the Rand and the table below is their base case for the ZAR/USD exchange rate as published on 27 July’20:

  1. Oil tanks feedback

The oil price has seen stabilisation over July, after its rapid climb in May and June from April’s low US$19/bbl. In an oil note from Investec, they indicate that the price of Brent crude oil could average around US$40/bbl in 2020, and around US$50/bbl next year as price pressures build over 2021 on improving global economic activity and the higher demand for commodities, including oil. They however warn that this year could see some stumbles in the oil price, as market sentiment on the global recovery waxes and wanes as data becomes available and the recovery so far proving nascent and unsynchronised.

As published in our previous newsletter, we’ve been trading oil in both our local and foreign share portfolios. Below the returns of the two Exchange Traded Products (ETPs) for the last 3 months:

# Portfolio Instrument Currency Performance for May’20 Performance for June’20 Performance for July’20
1 JSE share portfolio SBAOIL ZAR 24.95% 13.03% 3.97%
2 Offshore share portfolio USO USD 36.32% 8.42% 3.60%
  1. ETF portfolios feedback

An Exchange Traded Fund (ETF) is a security, which represents a basket of shares, that you can buy or sell on a stock exchange. These investment vehicles allow investors a convenient way to purchase a broad basket of securities in a single transaction. Essentially, ETFs offer the convenience of a stock along with the diversification of a unit trust. It is arguably the cheapest and most diversified way to get access to the stock market. ETFs portfolios have in recent years proven to not only be cost-effective underlying investment for our clients, but also been outperforming active fund managers.

Below our ETF portfolio performances as at 31 July 2020 on a cumulative basis:

# ETF Portfolio Currency 1 Year performance 2 Year performance 5 Year performance
1 Local ETF Portfolio ZAR 9.46% 19.13% Immeasurable
2 Offshore ETF Portfolio USD 7.68% 12.61% 47.68%

*Past performance is no guarantee of future performance. Above returns excludes dividends, except where ETF is a total return ETF

  1. Share-based-loans

On the flip side of the “cash is not king” dilemma, it is now much cheaper to gear your JSE share portfolio. By pledging your JSE share portfolio as collateral, you can get a loan at prime interest rate which is now 7%. That means that on a R1m JSE share portfolio with a R500k share-based-loan (i.e. 50% Loan-to-Value), the total return of your portfolio ONLY has to be 3.5% per annum in order to service the interest on the share-based-loan. Click here to read more.

  1. Fuel prices

Both petrol and diesel prices will increase on 5 August’20. The price of petrol will increase by 5 cents to R15.17 per litre in Gauteng province, the national benchmark for prices, while diesel will rise by 45 cents to R13.48 per litre. Without the Rand stronger performance during the month of July’20, the increases would have been higher, and they were solely attributable to an increase in the oil price.

  1. Market stats summary

The red block shows the market stats for the month of July 2020. In short, the JSE All Share Total Return index was positive by ↑2.6% for the month (still ↓-0.7% for the last 12 months). The Resource sector led the march, up a massive ↑9% for the month. The Financial sector was also positive ↑0.4% for the month.  The Industrial sector and Listed Property sector were both negative ↓-1.4% and ↓-3.2% respectively.

  1. Financial Indicators as at 31 July 2020

 Global indices (Returns are measured in Rand percentage points. For example, the S&P 500 returned 5.12% for the month as measured in Rands):

JSE Sectors:

Currencies (Positive indicates ZAR has weakened for the period, vice versa):

Interest Rates:




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