VIEW OF THE MONTH NEWSLETTEROCTOBER 2021
Our view of the month is a picture of the new Tesla Roadster which will only be released in 2023, “assuming 2022 is not mega drama” as per a tweet by Elon Musk. It seems that not even Tesla is immune to the current semiconductor shortages and supply chain disruptions caused by the Covid pandemic. Even with Musk claiming the car can reach 60 mph in 1.1 seconds, it’s still not fast enough to outrun global calamities.
Thanks to exceptional results and a surge (+44%) in their share price during October’21, Tesla now has a market cap greater than $1 trillion. This makes Tesla the world’s 6th most valuable company by market cap (The market capitalization, commonly called market cap, is the total market value of a publicly traded company’s outstanding shares and is commonly used to measure how much a company is worth).
Consequently, Elon Musk’s net worth has surpassed $300 billion, making him the first person on the planet to reach that milestone. It also means the South African born Tesla chief executive is worth tens of billions more than the second-richest person, Amazon.com founder Jeff Bezos. It is incomprehensible to imagine Elon would not have been able to get a corporate job in South Africa.
In this month’s newsletter we cover the following topics:
1. Buy global icon companies (like Tesla) in your local JSE trading account
2. We can now help you to get exposure to USD Bitcoin returns
3. Capital protected investment opportunities
4. Importance of dread disease cover, a true living benefit
5. Rand forecasts
6. Fuel Prices
7. Asset class returns
8. Chart of the month
9. Interesting stats for the month
10. Market stats summary
11. Financial indicators as at 29 October 2021
Carrying on from our Tesla introduction… how can you as a South African investor get access to Tesla and other global iconic companies? There are many ways but arguably the easiest way is through your local JSE trading account.
Thanks to RMB and FNB’s inward listed equity exchange traded note (ETN) programme, you can get access to global iconic companies conveniently through your own local JSE trading account. ETNs are debt instruments listed on the JSE that track the value of an underlying reference asset.
Further to the above, the ETNs tracking the global iconic companies have the following features:
Convenience – investors can utilise their local JSE trading accounts to invest;
Affordability – the ETNs initially listed at R10, giving investors very affordable exposure to foreign shares;
Exchange control – does not use your annual Single Discretionary Allowance (SDA) or your SARS approved Foreign Investment Allowance (FIA);
Choice of pay-offs between quanto or compo – See below
What’s the difference between the quanto and compo pay-offs?
Quanto: These ETNs track the price of an underlying share (such as Tesla) without taking the USD/ZAR exchange rate fluctuations into account. The price of the ETN increases or decreases in line with only the percentage movement in the underlying share. So, if Tesla shares go up 10% in US Dollars, the ETN will go up 10% in Rands.
Compo: These ETNs track the price of both an underlying share as well as the USD/ZAR exchange rate. So, if the Tesla share goes up 10% in US Dollars and the rand weakens by 10%, an investor will be on the receiving end of a 20% move. Likewise, if the Tesla share goes up 10% in US dollars and the Rand strengthens by 20%, the investor stands to lose 10%.
The quanto pay-off allows an investor to separate the effects of share price performance from rand performance. An investor can hold a view on an underlying share purely on the merits of that share, and gain USD/ZAR exposure separately in a manner that is appropriate for currency investing
By contrast, the compo pay-off will also allow investors to combine the effects of a ZAR/USD view with a view on the underlying stock. The effect of this is that when the currency weakens simultaneously to the underlying share gaining, the return to the investor is amplified. However, if the currency strengthens while the underlying stock loses value, the negative effect is also amplified. There is also the possibility that a gain/loss in the underlying share could offset the gain/loss in the currency.
Click here to find out more or to see a list of the available ETNs.
As per our mailer during October’21, we’re proud to announce that Vista Wealth can now help you to get exposure to USD Bitcoin returns in a regulated, convenient, safe and transparent manner.
Click here to read the promotional mailer again.
Capital protected investments are investments that offer full to partial capital guarantee (expressed as a percentage) on the initial invested amount. The percentage capital protected usually depends on the underlying investment’s performance.
The readers who are familiar with our investment strategy know that we prefer to include capital protected investments in our portfolios. It creates a margin of safety in the portfolio which can protect the investor if things really start going south.
With interest rates currently at historical lows and equity market uncertainty, capital protected investments might be a solution for savers or conservative investors with a low-risk appetite.
Below capital protected investment opportunities currently available:
|#||Issuer||* Investment name||Curr||Underlying
|Capital protection||Hosted within||Term and potential return ————————————————||Minimum||Participation cut-off date|
|1||ABSA||Twin Fixed Return and Growth Protector – Issue 28||ZAR||Combination of Fixed returns (Y1 & Y3) and Portfolio of global companies||100%||JSE share portfolio||1Y fixed return @ 16% on 25% of capital||R500k||Monthly issued|
|3Y fixed return @ 32% on 25% of capital|
|5Y geared return @ 150% on remaining 50% of capital, if positive|
|2||Glacier SA||Sustainable World Enhancer||ZAR||Portfolio of global companies||100%||Glacier SA platform||5Y geared return @ 400% (4 times) if positive||R100k||3 Dec’21|
|3||Liberty||Structured Global Performer V1 Portfolio||ZAR||50% S&P500 and 50% Euro Stoxx 50 capital indices||First 30% decline protected||Liberty platform||5Y term with the following pay-off:
– Index is positive at maturity, you receive a minimum return of 8% p.a.(companies 7.2% p.a.)
– No change in index value or decline not > 30%, capital protected
|4||Liberty||Structured Global Performer ESG V1 Portfolio||ZAR||MSCI Global Diversification ESG 100 Decrement 5% index||First 30% decline protected||Liberty platform||5Y term with the following pay-off:
– Index is positive at maturity, you receive a minimum return of 12% p.a.(companies 10,85% p.a.)
– No change in index value or decline not > 30%, capital protected
|5||ABSA||Performance Plus Note||USD||Nasdaq Yewno Global Innovative Tech Index||First 40% decline protected||Glacier International||5Y term with the greater of 20% or index performance if positive||$25k or $10k for existing clients||15 Nov’21|
* Click on the investment name to see the detailed investment brochure
Important notes about the above table:
- Even though all the above-mentioned investments have international equity exposure, one of the investments is in USD
- Individuals, companies, trusts or partnerships can utilise the Asset Swap functionality explained in our August’21 newsletter to invest in the USD capital protected investment opportunities
- No need to negotiate issuer or advisor fees as it is priced into the products and will not affect the investor’s initial capital investment or return
- Our preferred structure currently is the ABSA Performance Plus Note
Dread disease diagnosis is a life-changing event and can have a severe impact on the quality of your life. A dread disease is not selective and can affect anyone, although factors such as age, gender, family history and lifestyle can contribute to your chances.
What is dread disease cover?
Dread disease cover is an insurance benefit that offers a lump sum, tax-free payment if you are diagnosed with a severe illness
Do I need dread disease cover?
Dread Disease cover is an essential benefit which will stand alongside your medical aid and gap cover in the event of a major illness. Medical schemes are designed to cover direct medical costs which relate to your illness such as hospital costs, doctors’ bills, and medicines. However, non-medical costs associated with dread disease will be supplemented by the lump sum payout from your dread disease cover.
What can I use the pay-out for?
Once the claim department has authorised pay-out, you are free to use the money as you choose. A lump sum pay-out can provide a financial lifeline to a family who is facing intensifying healthcare costs because of a dread disease. The funds can be used to cover the costs of new treatments and technology that are not yet covered by medical schemes. The funds can also be used to assist with the costs of special dietary requirements, alternative treatments and therapies, vehicle, and home modifications, custom-made prosthetics, and private nursing.
Should I consider stand alone or accelerated dread disease?
Vista Wealth always recommends standalone core benefits as the life assured will qualify for multiple claims, but only where the claim causes are unrelated. By choosing standalone benefit, the life cover component will not reduce.
Due to advances in medical science, we are living longer with our diseases rather than dying from them. Instead of asking ‘will I survive?’, we now find ourselves asking ‘will I survive financially?’.
Should you wish to review your current benefit or would like to add this to your existing policy, please send Michelle Tailor an email at firstname.lastname@example.org
The Rand took a serious knock in the last week of October ending the month at 15.25 to the US Dollar. Even though many emerging markets currency weakened off the back of inflationary concerns and covid enforced supply chain disruptions, the Rand was particularly hard hit. Election uncertainties and specifically a high level of load shedding contributed to our misery. This after Eskom had to resort to Stage 4 loadshedding due to the breakdown in several units at the generation plants, but also because of delays in the return of units that were out for maintenance and have not come back successfully.
Below screenshot comparing the Rand against other emerging market currencies:
Below ZAR to USD exchange rate forecast by Trading Electronics:
Investec did not publish an updated exchange rate forecast during the month of October’21 and we urge readers to use the below forecasts from September’21 with caution:
South Africa’s rising fuel prices are set to hurt consumers far beyond just filling up their car’s tank. This after the AA indicated that paying R20 per litre for petrol before the end of 2021 was now a “realistic scenario”. Rising fuel prices, electricity price increases, and the fact that retailers typically hike their prices in the festive season, creates a bleak outlook for Christmas in South Africa.
Petrol (both 93 and 95) will see an increase of R1.21 a litre, while the price of diesel (0.05% and 0.005% sulphur) will rise by 148.2c a litre. The wholesale price of illuminating paraffin will be hiked by R1.45 a litre and LP gas by R2.90/kg.
Below asset class returns in Rand percentage terms as at 30 September’21 as published by Momentum Investments. Note that Global Equity has been the best performing asset class for the last 5, 10 and 15 year periods. Also, interesting that Local and Global Property has been the best performing asset classes year-to-date.
The bar chart below compares the returns of the MSCI World (Developed markets) to the MSCI Emerging Market index in USD terms from 2012 until September’21. Interesting to note a 14% difference indicating a potential opportunity for Emerging Markets.
But as with all investments, nothing is guaranteed. The below infographic by Momentum Investments indicates China, which carries a weighting of ≈35% in the MSCI EM index, is troubled with unequal development which might lead to more policy changes.
- 1.5% of companies generated all the net wealth on the global stock market (past 30 years)
- 61 years on the S&P 500 the average period a company lasted in 1958. In 2016 a company lasted 24 years on the S&P500 and it is forecasted that a company will only last 12 years by 2027
- 6 years old – Artificial intelligence has reached the same IQ as a 6-year-old during October’21
- $5trillion per year for the next 30 years – the investment required to reach net zero emissions. The potential impact of no action could mean more than 3% of GDP lost every year by 2030, growing to $69tn by 2100, and an extreme hit to corporate earnings.
- $15bn – The expected monthly reductions in bond purchases when the US tapering starts
- The wealthiest 10% of US households now own 89% of all US stocks – The top 1% gained over $6.5 trillion in mutual fund wealth during the pandemic
- China 3Q GDP growth slowed to 4.9% yoy from 7.9% in 2Q, slightly below expectations
*Credit to Kim Litter from Ninety-One for the above interesting stats
The red block shows the market stats for the month of October 2021. In short, the JSE All Share Total Return index was ↑5.2% for the month (up ↑35.4% for the last 12 months). The Resources sector was the best performing sector for the month ↑8.4%. The Industrial sector also had a good month ↑6.6%. The Listed Property sector and the Financial sector was both down ↓-1.7% and ↓-3.8% respectively.
Global indices (NB! Returns are measured in Rand percentage points. For example, the S&P 500 was up 8.01% for the month as measured in Rands)
Currencies (NB! Positive indicates ZAR has weakened for the period, vice versa)
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.