VIEW OF THE MONTH NEWSLETTER
NOVEMBER 2020Dear Investor,
We are acutely aware that due to the Covid-19 pandemic this year, many South Africans may not be able to enjoy our country’s beautiful holiday destinations over the upcoming festive period. For those lucky enough to be able to go on a well-deserved holiday, our view of the month is the “Capture Site”. Based between Nottingham Road and Howick, a must view while driving to your holiday destination in KwaZulu-Natal.
As the name suggests, this is the site where our former President Nelson Mandela was arrested on 5 August 1962. At the centre of the site is a fascinating steel column sculpture that forms an image of Mandela only when viewed from a certain angle. “The monument in honour of Nelson Mandela and his efforts, is a dramatic representation of the multi-faceted influence and the nature of a single human being that had an enormous effect on the identity of a nation.” Click here to read more.
In this month’s newsletter we cover the following topics:
- Double downgrade
- More offshore exposure in your pension?
- Rand forecasts
- Oil tanks feedback
- ETF portfolios feedback
- Fuel prices
- Market stats summary
- Financial indicators
- Thank you!
On 20 November both Moody’s and Fitch downgraded South Africa’s credit rating deeper into the junk status.The Moody’s downgrade places SA two notches into junk status, while the Fitch downgrade places us three notches below junk status.As a reminder, SA lost its last investment-grade credit rating in March’20 when Moody’s finally downgraded SA to junk status in line with S&P and Fitch.
The downgrades were detrimental for our country and as indicated by Tito Mboweni, the Minister of Finance, it was “painful” for an already ailing economy. He said that there is an urgent need for government to implement structural economic reforms to avoid further harm to the country’s sovereign rating. National treasury added that the continuous rating downgrades will translate to unaffordable debt costs, deteriorating asset values (such as retirement, other savings, and property) and reduction in disposable income for many.
2. More offshore exposure in your pension?
As part of government’s drive to attract foreign investment, the Finance Minister announced during the 2020 Medium Term Budget Policy Statement in October that “all the remaining foreign classified debt and derivative instruments as well as exchange traded funds (ETFs) referencing foreign assets, that are inward listed on a South African exchange, traded and settled in Rand, will be reclassified as domestic”. This was subsequently communicated via a SARB Circular.
The proposed changes would therefore remove the inconsistent treatment of inward listed instruments depending on whether they are equity, debt, ETFs, or derivatives. In layman’s terms it meant that an inward listed ETF like the popular Satrix MSCI World (STXWDM), would have the same domestic classification as an inward listed share like AB InBev (ANH) which is primary listed on the Brussels Stock Exchange and inward-listed as a secondary listing on the Johannesburg Stock Exchange (JSE).
Indirectly and more importantly, the change in legislation allowed pension savers to get more offshore exposure in their pension portfolios. As a reminder, Regulation 28 of the pension fund act currently allows only 30% offshore exposure in your pension portfolio.
Investors have, for a long time, been able to get more than the allowed 30% offshore exposure by investing in the so-called Rand hedge shares like ANH. With this change, investors could do the same, utilising ETFs that reference foreign assets just like the STXWDN ETF and other. This would expand available offshore investment options from just a few international shares that “happens to be listed here”, to a vast amount of offshore geographies, industries, and sectors.
This was great news for pension savers, given the poor performance of the SA market over the last 5 years. It would have assisted Vista Wealth clients to increase their offshore exposure to as much as 100% in the following specific products: Company Umbrella Funds, Retirement Annuities, Pension and Provident preservations.
Unfortunately, the celebration did not last long. On 24 November the SARB, National Treasury and the FSCA announced the suspension of the Circular to “reduce the scope for ambiguity related to compliance with the prudential framework for regulated funds” and to allow for public consultation.
So why the change you might ask? As per the introduction, the change was made to attract foreign investment and create a level playing field. It was an unintended consequence to allow more than 30% offshore exposure in Regulation 28 pension portfolios.
Nevertheless, the door was opened, and we must get a foot in there – along with the announcement that the Circular is suspended, stakeholders and the public were invited to submit comments to the SARB as to how the Circular should be amended. All comments must be sent to sarbportfolio@resbank.co.za by 15 December. We urge all our readers to add their voices and submit their comments accordingly. Together we might be able to convince government to give us the choice to have more offshore exposure in our pension portfolios.
The Rand has strengthened by 10% against the US Dollar this quarter, making it the emerging world’s best performer after Mexico’s Peso. This off the back of a Biden US presidential win, that will ensure a more accommodating approach towards emerging markets. The recent array of Covid-19 vaccines has also assisted the local currency’s strength. The Rand can still strengthen if we look at the expected case of Investec’s exchange rate forecasts as published on 19 October 2020:
Oil prices have rallied off the back of possible vaccines for Covid-19 and therefore an increased demand for oil. As published in our previous newsletter, we’ve been trading oil in both our local and foreign share portfolios. Below returns over the last 3 months of the two Exchange Traded Products (ETPs) used to get exposure to oil:
| # | Portfolio | Instrument | Currency | Performance for Sept’20 | Performance for Oct’20 | Performance for Nov’20 |
| 1 | JSE portfolio | SBAOIL | ZAR | -9.36% | -11.98% | 15.65% |
| 2 | Offshore portfolio | USO | USD | -7.49% | -10.70% | 22.65% |
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. ETF portfolios have in recent years proven to not only be cost-effective investments for our clients but has also been outperforming active fund managers.
Below our ETF house view portfolio performances as at 30 November 2020 on a cumulative basis:
| # | ETF Portfolio | Currency | 1 Year performance | 2 Year performance | 5 Year performance |
| 1 | Local ETF Portfolio | ZAR | 6.43% | 23.7% | Immeasurable |
| 2 | Offshore ETF Portfolio | USD | 12.56% | 30.12% | 67.73% |
*Past performance is no guarantee of future performance. Above returns excludes dividends, except where ETF is a total return ETF
According to the Automobile Association, the petrol price is set to drop while the diesel price will increase on Wednesday, 2 December:
-
-
-
-
- Petrol unleaded 93: ↓ 13 cents per litre
- Petrol unleaded 95: ↓ 13 cents per litre
- Diesel all grades: ↑20 cents per litre
-
-
-
“The Rand appreciated against the US Dollar, which bailed out South African fuel users, and if the current swing continues it will likely keep the fuel price stable until 2021” the AA said in a statement. The petrol price decline at this time of year will come as good news for many people who will be travelling for holiday in December.
The markets were buoyant in November, as investors looked beyond the current Covid-19 infection numbers and shutdowns and ahead to the prospects of a Covid-19 vaccine being rolled out in the coming year. This follows the positive outcomes of trials by Pfizer / BioNTech, Moderna, AstraZeneca and Oxford University.
The JSE All Share Total Return index was up ↑10.5% for the month of November 2020! The Property sector was the best performing sector for the month, up a massive ↑17.5%. The Financial sector was short on its heels, up ↑17.0%. The Resource and Industrial sectors were also convincingly up ↑10.9% and ↑7.9% respectively.
8. Financial indicators as at 30 November 2020
Global indices:(NB! Returns are measured in Rand percentage points. For example, the S&P 500 returned 5.45% for the month as measured in Rands)
JSE Sectors:
Currencies: (NB! Positive indicates ZAR has weakened for the period, vice versa)
Interest Rates:
Even though we will be closing for the festive period on 15 December, our cellphones will remain on. We would like to take this opportunity to wish you and your loved ones a peaceful, safe, and blessed festive season. Many thanks for all your support during 2020!