Dear Investor,

We were tempted to make our “view of the month” picture a photo of the ANC criminals being arrested by the Hawks. We were holding our breaths the whole of September, wondering if the high profile arrests were going to happen as promised by the NPA. The arrests were a watershed moment for South Africa, signaling to the criminals that the wheels of justice is turning, albeit a bit slow. Instead our “view of the month” picture is South Africans celebrating heritage day. As we all face our challenges as a result of Covid-19 and our battered economy, this is a good opportunity to reflect on the wonders of simple privileges in life such as gathering round a braai, being surrounded by family and friends and enjoying the scenery and weather of our beautiful country. In this month’s newsletter we cover the following topics:

  1. Active versus passive investment strategies
  2. Capital protected investments
  3. Rand forecasts
  4. Oil tanks feedback
  5. Fuel prices
  6. Share-based loans
  7. Company pension/provident solutions
  8. Support Local – New feature!
  9. Market stats summary
  10. Financial indicators
1. Active versus passive investment strategies

There is a debate in the finance industry:  which investment strategy is better, active or passive? Below we define active versus passive investment strategies:

  • Active investment strategies – Active investing requires a hands-on approach, typically by an investment manager. As the name implies, active investment management usually involves a human’s intellectual property, often resulting in more frequent trades, with both contributing to higher costs. Equity Unity Trusts (UT) by Allan Gray or Coronation are examples of active investment strategies.
  • Passive investment strategies – The rationale of passive investing is grounded in the notion of efficient markets. According to this theory, the share price of a company incorporates all available information. Unlike active investment managers, the passive investment manager therefore does not conduct any proprietary fundamental company analysis to select undervalued shares to outperform the market, but rather replicate the market’s performance by holding the same shares and in the same proportions as the index. An Exchange Traded Fund (ETF) or Index Fund Unit Trust are examples of passive investment strategies.

Fees are at the centre of the active/passive investment strategy debate with market commentators arguing that investors are potentially paying high fees to active managers while their performance is not guaranteed and often underperform passive investment strategies. As an example, in the below table we compare the performance and fees of a basket of five random active SA equity funds (20% weighting each) to a passive equity fund which tracks the SA Top 40 as at 30 September’20:

Period Active SA Equity Fund Basket Passive SA Equity Index Fund
1Y performance -4.72% 5.20%
3Y annualised performance -2.59% 3.02%
5Y annualised performance 0.33% 4.60%

It is important to note that the above performance is after levying investment manager fees, which is often approximately double for active managers versus passive managers. This often contributes to the underperformance of the active investment strategy. According to Blackrock (international asset manager), there are now 70 times more stock market indices than there are quoted stocks in the world. This massive growth in indexing has unfortunately brought about the following unintended complexities:

  • Country classifications –South Korea as an example, is classified as a developed market in indices provided by the FTSE but as an emerging market by MSCI
  • Country concentration – The MSCI World index (an old favorite of Vista Wealth) as an example, tracks the world stock market. It has a market capitalisation exposure to the US of almost 60% compared to the revenue exposure to the US which is just more than 40%
  • Single stock concentration –The Satrix MSCI China ETF as an example,  where 2 shares (Alibaba and Tencent) makes up 35% of the holdings compared to the Satrix MSCI Emerging Market ETF where the maximum holding in one share (Alibaba) is 6%. For South African investors holding Naspers, there will be even more concentration risk as Naspers owns 32% of Tencent
  • Smart beta – With these passive investment strategies, the index providers tweak an index to provide greater exposure to stocks that have more of a specific characteristic like value, quality, or size. For the value characteristic it may, for example, only include companies in the index where the price-to-earnings (PE) of the stock is below a certain predetermined value
  • Asset allocation choices – In the international market, investors are spoiled for choice with passive investment strategies. Access to industries like Biotech, Semiconductors, and Marijuana are now freely available but how much to allocate to each of these industries is a conundrum

DIY investors that created their own portfolios with passive investment strategies are now battling to select the right strategy from the thousands of options available. As a result of the above complexities, risk has increased as investors often make mistakes while creating their own investment portfolios. Investors are required to perform better due diligence when constructing their own portfolios and the process has become complex and requires in-depth knowledge of the passive investment strategies on the same basis as traditional single stock selections. The simplicity which was originally associated with passive investment strategies is diminishing and investors are forced to seek advice from qualified stockbrokers and financial advisors. At Vista Wealth we believe active and passive investments strategies are not mutually exclusive and in a well-constructed long-term investment portfolio, they can both contribute to accomplishing an investor’s investment objectives while offering better diversification at a lower cost and risk. Below Vista Wealth’s ETF portfolio performances as at 30 September 2020 on a cumulative basis:

# ETF Portfolio Currency 1Y performance 2Y performance 5Y performance
1 Local ETF Portfolio ZAR 7.20% 13.14% Immeasurable
2 Offshore ETF Portfolio USD 9.67% 13.72% 60.21%

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

Lastly, our offshore ETF investors will be happy to learn that there’s new pure tech Chinese ETFs on the cards! Four new Chinese ETFs, tracking the Shanghai Stock Exchange’s “Nasdaq-style” Star Market, were approved by the Chinese authorities. The ETFs will be the first to track the newly launched Science and Technology Innovation Board 50 Index, dubbed the SSE Star 50 Index. From a base of 1,000 points at the end of 2019, the Star 50 index has surged 49.7% so far this year, dwarfing the 13% growth logged by the CSI 300 index, which tracks the performance of the top300 stocks traded in Shanghai.

2. Capital protected investments

South African interest rates have been reduced by 3% this year already and as a result “Cash is NOT king” anymore. Conservative investors making use of interest bearing bank or money market investments are lucky if they earn more than 4% per annum, therefore hardly keeping up with inflation. This month we bring you 3 great capital protected investment ideas which are more aggressive than interest bearing instruments but still protect investor’s capital. The underlying for these investments are all international indices also providing a Rand hedge for investors – listed in order of participation closing date:

2.1 ABSA Twin Fixed Return and Growth Protector – Issue 17

– Closing date 14 October 2020

– Hosted within JSE Trading Account

Click here to read more

2.2 Glacier Sustainable World Enhancer

– Closing date 30 October 2020

– Sinking fund policy underwritten by Sanlam Life

Click here to read more

2.3 Investec Advanced Investment Holdings Limited – USD

– Closing date 10 December 2020

– Hosted within Glacier International Global Life Plan

Click here to read more

3. Rand forecasts

Below Investec’s base case forecasts for the ZAR/USD exchange rate:

4. Oil tanks feedback
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 4 months. Due to the Oil price at expected levels for the year and Rand strengthening forecasted, we should have taken profit last month:
# Portfolio Instrument Currency Performance – Jun’20 Performance – Jul’20 Performance – Aug’20 Performance – Sept’20
1 JSE share portfolio SBAOIL ZAR 13.03% 3.97% 5.53% -9.36%
2 Offshore share portfolio USO USD 8.42% 3.60% 5.19% -7.49%
5.  Fuel prices
According to the Automobile Association, fuel prices will drop on Wednesday 7 October 2020:
  • Diesel all grades: ↓ 93 cents per litre
  • Petrol unleaded 93: ↓ 24 cents per litre
  • Petrol unleaded 95: ↓ 33 cents per litre

While the rand dipped as low as R16.10 earlier in the month of September’20, in recent days it has tested the R17 mark, and this has unfortunately coincided with the strengthening of international petroleum prices.

6. 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.

7. Company pension/provident solutions

Companies are continually under pressure to control the costs associated with employee benefits, while attracting and retaining high quality employees. Vista Wealth will assist your company/employer to get the best pension/provident administrator that suit your needs, while saving you money. Click here to read more, our process is simple but effective:

  • Perform cost comparison
  • Extrapolate costs over a 15-year period to show compound effect on fees
  • Show diminishing effect of higher fees on pension savings
  • Find solution with lower cost, latest technology, best service and support

8. Support local

This is a new feature in our newsletter where we’re doing our part in promoting local businesses affected by the devastating impact of Covid’19. We’re specifically focussing on businesses hardest hit or still affected by the lock-down regulations. Most business we’ll be featuring is also clients of Vista Wealth.

Deux Frères is a boutique vineyard and guest house in the Simonsberg foothills of the famous Stellenbosch wine route. Built on the values of responsibility, integrity, industry, individuality and uncompromising quality, Deux Frères produces just 3 000 cases of world-class reds (including Bordeaux and Rhone blends), a very traditional French-style Blanc de Noir and a Chenin Blanc. Enjoy a relaxed tasting, or stay for longer in their new, exquisitely decorated villa apartments. Click here to read more and remember to quote Vista Wealth for your 15% discount.

9. Market stats summary

The red block shows the market stats for the month of September 2020. In short, the JSE All Share Total Return index was negative ↓-1.6% for the month (↓-2.5% for the last 12 months). The Financial sector was the only sector positive for the month, up ↑2.2%. The Resource and Listed Property sector were both convincingly down ↓-4.5% and ↓-3.0% respectively. The Industrial sector was down ↓-1.9%.

10. Financial indicators as at 30 September 2020

Global indices: (NB! Returns are measured in Rand percentage points. For example, the S&P 500 returned -3.39% for the month as measured in Rands)

JSE Sectors:

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

Interest Rates:


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