|In this newsletter:
Benchtest 04.2017, switching at quarter ends, RFS staff movements, status of chart of accounts project and more...
Kai Friedrich's Administration Forum
News from RFS
New members appointed to the RFS team
Veueza Virginia Kangueehi joined our permanent establishment on 15 February 2017 as an Accountant in the Benchmark accounting department. Veueza joined us from Alexander Forbes where she served in the capacity of bookkeeper for 2 years before joining us in September 2016. She completed her school career at Mariental High School and holds a B Tech Accounting degree from NUST. We welcome Veueza and wish her an interesting and challenging career at RFS!
Zulene Bio joined our permanent establishment on 1 May 2017 as an Administrator in the administration team of the Retirement Fund for Local Authorities. She joined us from Old Mutual where she served in various administrative capacities in the employee benefits arena from 2002 until 2013, to then serve in administrative capacity for the Old Mutual Foundation. Zulene completed her school career at Academia High School and went on to obtain a B Comm Marketing Management degree from MANCOSA. She offers her clients extensive relevant experience stretching over more than 15 years. We welcome Zulene and look forward to her applying her knowledge and experience for the benefit of her portfolio of local authorities and their staff!
Paul-Gordon Guidao-oab joined our permanent establishment as Benchmark Product Manager on 1 May 2017, after having served in the position of Manager: Internal Audit, Risk and Compliance since May 2016. Paul joined us from Magnet Bureau de Change where he held the position of Audit and Risk Manager. He completed his school career at Windhoek High School, went on to obtain a B Compt degree from Unisa and competed his articles after a 5 year stint at SGA Chartered Accountants and Auditors. Paul brings a wealth of experience to his new position and will be in an ideal position to further develop the Benchmark Retirement Fund, this flagship of umbrella funds in Namibia. We welcome Paul and look forward to a long mutually beneficial relationship!
Staff who crossed the 5-year service mark
The following staff members have this year completed their 5 years’ service with RFS:
Staff who crossed the 10-year service mark
This year, the following staff members have completed their 10 year service with RFS:
After a 3-year stint with RFS, Justine Shipanga regrettably moved on for greener pastures. We wish Justine well with her future endeavours and that she may realise her aspirations and dreams!
News from NAMFISA
The One Chart of Accounts project
Asset managers will have to carry the brunt of the new reporting that NAMFISA proposes for the financial services industry that is to replace the current SIH reporting.
Besides numerous comments on the content of the ‘chart of accounts’, asset managers have noted the absence of guidance on the classification of instruments as one major concern. This would lead to inconsistent classification which in turn narrows the usefulness of the information provided to NAMFISA and impairs the conclusions NAMFISA can draw from the data submitted. Furthermore the urgency of implementing this proposal was questioned as asset managers envisage that it would take up to 1 year to adapt their systems to meet the requirements of this report. Concerns were raised about the additional cost burden this would present to members of pension funds as it would require the entry of specialist intermediaries to compile the reports. Consensus amongst asset managers is that they are not able to provide any cost indication or time frame until a number of questions have been answered by NAMFISA.
New NAMFISA levy structure:
fund members to pay N$ 340 p.a.
Extensive comments were provided to NAMFISA on the proposed levy structure by various stakeholders including RFS. NAMFISA arranged a meeting to discuss these proposals for Tuesday morning 16 May. On Friday 12 May at 17h01, NAMFISA circulated a document containing its responses to the comments that were submitted by various industry stakeholders. From this document as well as the feedback received from a very well and widely attended meeting it seems that the new levy structure was a fait accompli even before it was circulated to industry stakeholders. It should have been obvious from the start that industry stakeholders would have serious concerns about the new levy structure due to the radical changes it envisages.
At the end of the day, pension fund members will contribute the major portion towards funding of NAMFISA activities. Their direct contribution will be in the region of N$ 85 million per year. Indirectly pension fund members will make a further contribution via the levy on long-term insurers, short-term insurers, stock brokers and stock exchanges. As such members will contribute a significant portion of a total contribution towards NAMFISA costs by these institutions estimated to be in the region of N$ 50 million.
Each member and pensioner will thus contribute directly at the rate of approximately N$ 240 per annum plus potentially another say N$ 100 per annum in respect of indirect levies. To put this figure into some perspective, the average fund administration fee that every member and pensioner currently pays is estimated to be in the region of N$ 1,000 per annum.
Download the RFS comments and questions, and the NAMFISA responses, here...
(for stakeholders of the retirement funds industry)
Review of pension fund trustee decision
Do you know which benchmark your equity fund manager is using? And does it matter?
“Every unit trust in South Africa has to publish a fund benchmark. In the case of equity funds, this benchmark is usually market index, which indicates the standard against which the fund should be measured.
“The benchmark is there so that you know what the fund manager is trying to achieve,” explains Morningstar investment analyst Gerbrandt Kruger. “It gives you an idea of their objective”…
Figures from Morningstar show that active managers in the South African general equity category are using 14 different benchmarks between them…
So should it matter to investors what benchmark is being used? Pieter Koekemoer, the head of personal investments at Coronation says that the answer really depends on its purpose.
If the manager uses a ‘clean slate’ approach, which means that they pay no attention to the benchmark when picking stocks, then the benchmark is only there to help you evaluate whether you are receiving value for money. If however the manager is charging performance fees for outperformance, then it becomes more important…”
Read the full article by Patrick Cairns in Moneyweb of 9 May 2017, here...
The p/e explained in lay man’s terms
“Think of the P/E like this. Your business has 10,000 shares outstanding, and your current share price is $10. That means your company is worth $100,000 (10,000 x $10). Now, let’s say your company earned $20,000 over the last 12 months. That works out to $2 in earnings for every share of outstanding stock ($20,000 in earnings divided by 10,000 shares). So if your stock price is $10 and your current earnings per share is $2, then your stock price is trading at a P/E of 5 (or simply $10 divided by $2 equals 5). It is simply a metric to see if your “hamburger” is pricey or cheap.
Note, this P/E calculation is based on your previous year’s earnings, not your estimated next year’s, or forward, earnings. If you expect to make $25,000 next year, then your forward P/E ratio is 4. As we will see later, optimistic earning projections can make valuations appear much better than they are. It’s like the old warning: “Objects in the mirror may be closer or larger than they appear.”
With the P/E calculation as a basic starting point, we can see if your hamburgers are expensive or inexpensive. We can look at the S&P 500 Index (a benchmark of “the market”) and we can measure what the average P/E has been over the last 52 years – call that “fair value” or a fair price for a hamburger.
What we see is that a P/E of 5 is a really cheap hamburger. Now, I believe in you, and I believe you can grow your company’s earnings over the coming years; but, wow, if I can buy your great company at a low price, odds are I’m going to make a lot of money on my investment in you. And if I really think you’re going to grow your earnings by 25%, that could make you a bargain.
We can look at the market as if it were a single company and gauge how expensive stocks are now. Over the last 52.8 years, the median fair value for the S&P 500 is a P/E of 17 (we define what we mean by median below). That means a fair price for your company would be the $2 in earnings we already calculated, times 17, or $34 per share. If I can buy your stock for $10 per share instead of its fair value of $34, good for me.
Investors who use this approach are called value investors. I should note that, relative to the actual performance of the market, value investors have been severely underperforming for the past four or five years. They have been punished by seeing assets leave their funds and go to passively managed funds that have shown much better performance at much lower fees. (Note from John: In a few weeks I’m going to talk about the source of this underperformance and what you can do about it. This is a very serious investment conundrum.)
But what if you earn $2 per share and your stock is trading today at $48 per share, or 24 times your earnings? Well then, I’m buying a very expensive burger. So price relative to what your company earns is a good way for us to see if we should sing or weep.”
What the p/e tells us about the state of the US stock market
“Here is how you read the following chart (from Ned Davis Research):
One last comment on the chart. At the very bottom of the chart, Ned Davis states that the market is now 7.9% above the level at which it is considered to be overvalued.
Read the article here...
(for investors and business)
Busting post downgrade myths
“While SA's double-whammy of downgrades has certainly made its mark, the assumption that it has killed SA as an investment destination seems tenuous. This week, COVER brings you the latest news on how SA may still be alive and kicking - from a top-four FDI rating to significant new offerings on the JSE, and practical tips for clients on how to retire post-downgrade. Read on, and feel proudly South African - We will survive.”
From Monday edition of Cover Magazine of 24 April.
A lesson in leadership: control your emotions
The first step in controlling your emotions is to understand that there are 7 different intelligences as Howard Gardner, Professor at Harvard has identified:
You certainly need intra- and interpersonal intelligence if you wanted to successfully jettison your anger and control your emotions to become more positive. Here is a simple two-step method to achieve this:
STEP ONE: Jettisoning anger
STEP TWO: Controlling the emotions
To control your emotions, do the following.
Read the interesting short article by Yoshito Hori in Linkedin of 18 May, here...
“Whenever you find yourself on the side of the majority, it’s time to pause and reflect.”
~ Mark Twain