MAY 2021

Dear Investor,

Our View of the Month picture features snow at the Afriski Mountain Resort on 31 May’21. This was the second snowfall at the resort in the last month. The SA tourism sector was one of the hardest hit industries as a result of the Covid-19 pandemic, we urge our readers to support local tourism if possible.

Unfortunately, the good news and beautiful scenes were short lived as Stats SA released South Africa’s unemployment rate which marginally increased to 32.6% – the highest since the survey was launched in 2008. Unemployment among the youth (aged between 15 and 24) reached a record high of 63.3% and those aged between 25 and 34 at 41.3%. Every South African should be shocked and concerned about these unsustainable numbers.

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

1. Diversify offshore
2. US inflation fears explained
3. Capital protected investment opportunities
4. Rand forecasts
5. Oil tanks feedback
6. Fuel prices
7. Market stats summary
8. Financial Indicators as at 31 May 2021
9. Disclaimer

1. Diversify offshore

Nobel Prize winner Harry Markowitz coined the phrase “the only free lunch in finance is diversification”. At Vista Wealth we live by this phrase and manage our client’s portfolios accordingly. We diversify investments across different asset classes, sectors, industries, and geographical countries. It is important however, that the investment allocation ties back to the client’s investment goals.

Arguably the biggest reason to diversify investments is to reduce your financial risk. Here the adage of not having all your eggs in one basket rings true. The great Steinhoff fraud is a good case in point of why it is important to diversify. If you were invested only in Steinhoff between 2013 and 2016, you would have realised a cumulative return of over 280% in just 3 years. If you were invested in only Steinhoff the 3 years between 2016 and 2019 you would however have lost 98% of your initial gain.

A big problem for South Africans is that they do not diversify enough offshore. At Vista Wealth we recommend a client’s offshore exposure to be at least 50% of their total investment portfolio. The reason for this high allocation is not because we are anti-South African or negative towards the country, but rather:
• the fact that we are a small country at the bottom of Africa which contributes less than 1% of the world’s GDP is a risk.
• another reason is the limited asset classes available in South Africa compared to what is available offshore. Think technology, medical devices, semi-conductors, electric vehicles, biotechnology, etc.
• most of South Africans assets in the forms of their properties and pensions have only SA exposure. Investors do not take these allocations into account when looking at their overall portfolio allocation.

The incorrect reason for diversifying offshore is the current Rand strength, or should we rather say the developed market currency weakness. As the exchange rate has shown in the last couple of months, it is impossible to time when an exchange rate is good or bad. As a result, we believe your investment goals and diversification must be your primary reasons when investing offshore. We however do not dispute that the current exchange levels do offer a good entry point for investors who’s investment goals require diversifying offshore.

Click here to read more about Vista Wealth’s offshore services and investment opportunities

2. US inflation fears explained

Readers would have seen in the media over the last couple of months that US stock market declines are blamed on fears of inflation. This unfortunately has an impact on the rest of the world’s markets as the saying goes, “when the US sneezes the rest of the world catches a cold”. We have had many investors asking us to explain why higher inflation causes stock markets to fall. This is our attempt to explain the phenomenon in layman’s terms.

What is inflation? The simple definition of inflation is the sustained upward movement in the overall price level of goods and services in the economy. When a unit of currency depreciates in value, so does purchasing power, as it takes more currency units to buy the same amount of goods and services than it did in the past.

What causes inflation? Both Demand-pull and Cost-push are responsible for a general rise in prices in an economy. Demand-pull conditions occur when demand from consumers pulls prices up. Cost-push occurs when supply cost force prices higher. The Covid-19 pandemic has caused both conditions:
Demand-pull conditions where consumers are cash flush from stimulus cheques in the US demanding product and services where suppliers cannot keep up with the speed of the recovery.
Cost-push as commodity and raw material prices fell flat during the start of the pandemic and now recovered with supply bottlenecks and shortages causing increased prices.

How does inflation affect a share price? Unfortunately, the relationship between a share’s price and inflation is complex and there is not a single catch-all rule that can be applied. In general, the following observations has been made:
• In the long run, a share portfolio can be used as a hedge against inflation as the monetary value of the portfolio can increase as the goods and services the company produces also increases. The reason is that over time, the company can adjust their sale prices and pass the higher input cost to the consumer.
• In the short term and especially with sudden inflation increases, the correlation between inflation and share prices are inverse. Reasons for this ranges from the short-term impact of reduced profits until the company can pass the higher cost the consumer, to the valuation of share prices using the discounted cashflow or dividend discount methods. This is because high inflation is combatted by increasing interest rates and higher interest rates translates into lower present values of shares using the discount valuation methods.

So, it is changes in interest rates affecting the value of shares and not inflation? Central banks are tasked with maintaining a country’s inflation rate. By raising interest rates, they will encourage savings over time that will eventually end up lowering inflation and vice versa. But as indicated above, higher interest rates translate into lower present values of shares using the discount valuation methods.

But do all shares react the same to interest rate changes? Stocks can be divided into growth and value categories. Value shares have strong current cash flows, while growth stocks have little or no cash flow. Historically when valuing shares using discounted valuation methods, value shares perform better during high inflation/interest rate periods because their cashflows used in the valuation is higher (compared to growth stocks) resulting in a higher present value or current share price. This suggests a positive correlation between higher inflation and the return on value stocks and a negative correlation for growth stocks..

3. Capital protected opportunities

Leading from our inflation and interest rates section above, it is noted that interest rates are currently at historical lows and the uncertainty of when and by how much central banks will raise interest rates to combat inflation, is creating volatility and uncertainty for investors.

As a result, we advise investors to create a safe base in their portfolios investing in capital protected investments. But just like with other investments, it is important that investors diversify across capital protected investments. The aim with diversifying capital protected investments is to get a spread of different underlying asset classes. In this month’s newsletter we provide investors with 3 capital protected investment opportunities each with a different underlying asset class:
• Portfolio of emerging market companies (Investec)
• Portfolio of global companies (Glacier)
• Combination of fixed return and portfolio of global companies (ABSA)



Investment name


Underlying portfolio/index

Capital protection

Hosted within

Term and potential return


Participation cut-off date




MSCI Emerging Markets Index

100% protection, provided index does not fall greater than 30% on maturity

JSE share portfolio


Glacier International

4Y minimum return of 22% in USD if index i flat or positive. 100% participation if index > 22%

Local -R100K                                                              Offshore - USD25K

Local - 9 July'21                            Offshore - 16 July'21


Glacier SA


Portfolio of global companies


Glacier SA platform

5Y geared return @ 400% (4 times) if positive


23 May'21




Combination of Fixed returns (Y1 & Y3) and Portfolio of global companies


JSE share portfolio

1Y fixed return @ 14% on 25% of capital   3Y fixed return @28% on 25% of capital              5Y geared return @150% on remaining 50% of capital, if positive


9 June'21 - Issued monthly

* Click on the investment name to see the detailed investment brochure

Below a short visual summary of each product:

Investec – USD MSCI Emerging Markets Index Digital Plus

Glacier SA – Sustainable World Enhancer

ABSA – Twin Fixed Return and Growth Protector


4. Rand forecasts

S&P Global and Fitch Ratings affirmed South Africa’s long-term sovereign credit rating at BB-, which is three notches below investment grade. In terms of outlook, S&P has maintained a “stable” view on South Africa, while Fitch maintained its outlook as “negative”.

There was no change to Investec’s Rand forecasts as published in our previous newsletter. Below we publish it again for ease of reference:

5. Oil tanks feedback

Oil prices continued to rise during the month of May’21 mainly due to the following reasons:

• In the US the summer driving season officially got underway following the Memorial Day weekend, they entered this period with gasoline inventories already trending lower, and not too far from a 5-year low for this time of the year.
• While there are concerns over tighter COVID-19 related restrictions across parts of Asia, the market appears to be more focused on the positive demand story from the US and parts of Europe.
• Earlier in the month the Colonial Pipeline, a 5,500-mile conduit stretching from Texas to New York in the USA, was closed following a cyberattack on the company’s computer systems.
• US energy giant Chevron closed a major offshore natural gas facility in the eastern Mediterranean because of the continued fighting between Israeli and Palestinian groups.

As published in our previous newsletters, we have been trading oil in both our local and foreign share portfolios. See below returns over the last 4 months of the two Exchange Traded Products (ETPs) used to get exposure to oil::

# Portfolio Instrument Currency Performance for Feb’21 Performance for Mar’21 Performance for Apr’21 Performance for May’21
1 JSE  portfolio SBAOIL ZAR 17.69% -3.81% 3.33% 1.81%
2 Offshore portfolio USO USD 17.42% 6.91% 6.91% 4.82%

Fuel prices

Following on from the above Oil tanks sections, the Energy Department has announced that the price of both grades of petrol will decrease by 10 cents a litre on 2 June’21, while the price of diesel will increase by between 20 and 21 cents a litre.

Illuminating paraffin will cost 20 cents more per litre, while the price of LPG will drop by 143 cents per kilogram.

7. Market stats summary

The red block shows the market stats for the month of May 2021. In short, the JSE All Share Total Return index was up ↑1.6% for the month (↑38.1% for the last 12 months). The Financial sector was the best performing sector for the month, up by ↑9.2%. The Industrial sector was up ↑1.6% for the month. Both the Resources and Industrial sector were down ↓-1.2%  and ↓-2.9% respectively for the month.

8. Financial indicators as at 31 May 2021

Global indices (NB! Returns are measured in Rand percentage points. For example, the S&P 500 was down -4.71% for the month as measured in Rands) 

JSE Sectors:

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

Interest Rates:

9. Disclaimer

The information contained in this e-mail is of a general nature and is not a substitute for professional advice. We recommended that you obtain specific professional advice before you take any action. Vista Wealth Management takes all reasonable steps to ensure that the content of this e-mail is accurate and up to date, however, errors and omissions may occur. The accuracy of the information contained should therefore not be relied upon as a statement of fact.


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