Dear reader

In this newsletter we provide more feedback on the Africa Cup of Investments Conference that always provides an interesting global overview of developments and trends in the field of investments. In our Benchtest Monthly Review of Portfolio Performance in this link , we provide some interesting new statistics on global commodities and foreign portfolio investment in relation to the movement of the Rand: US$ exchange rate and some of the main indices of the FTSE/JSE and comment on how we associate these with our expectations of how financial markets will evolve over the next few years.

For those who take an interest in the pensions industry we also provide links to a few interesting articles.

As always, your comment is welcome, so open a new mail and drop us a note!

Regards

Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 10.2013

In October the average prudential balanced portfolio returned 2.70% (September: 3.42%). Top performer is Metropolitan (3.42%), Allan Gray (2.10%) takes the bottom spot.

We have previously been reporting and have placed a lot of emphasis on the impact that global quantitative easing, or asset purchase programmes undertaken by reserve banks, had on emerging economies and more specifically on commodity based economies. These measures have and are still producing a strong flow of capital into emerging economies. This flow presents an artificial support of the currencies of emerging countries, artificial support of their equity markets and an artificially low interest rate environment. This artificial support will fall away as soon as these programmes are reduced and eventually withdrawn.

At this stage it seems that the Fed will put the brakes on its asset purchase programme in the next year but that it will continue with its zero interest rate policy. If this will be the case, one may expect the further bloating of global equity markets to recede although a low interest rate environment will still result in an investor equity bias.  The investor needs to now look beyond the tapering by the Fed. For South Africa and Namibia, being commodity based economies, our economies and markets are highly sensitive to movements in global commodity markets.

Against this backdrop, it is interesting to study global commodity markets and how this impacted on our currencies and markets. This can also provide a queue to how our local equity markets are likely to develop over the next few years. The graph below lucidly presents some interesting correlations with the 'Economist Continuous Commodity Index' (Com Ind).



Read our full commentary, find out how these and other developments impact on our investment views and download Benchtest 2013-10, here...

Africa Cup of Investments Conference 2013

Part 2

The theme of this year's conference was "Challenging the Investment Mindset". As in previous years it was a well organised, very interesting and informative conference that can only be recommended to anyone who has a role to play in the pensions industry. Here are some extracts from part 2 of our conference review.

Challenging your investment mindset
Steps taken by fiscal authorities across the globe to overcome the financial crisis had a major impact on investment markets and require a mind shift of the investor.

• In the face of the uncertainties prevailing in global financial markets, investors need to review their measure of risk, extend their investment time horizon beyond the prevailing uncertainties and must temper their return expectation...

Facilitating investment in Africa and overcoming potential deterrents
Africa has become the 'flavour of the month' for foreign investors. However, it does present a number of challenges that investors need to be aware of and overcome.

• Africa achieved a lot in improving political stability over the past years.
• Africa GDP grew from US$ 600 bn in 2000 to US$ 3 trn...

Commodities and currencies
Quantitative easing has produced exceptional returns on equity investments since the financial crisis. In view of the risks this presents, investors should consider commodities as an asset class that offers attractive features.

• Investing in commodities should be considered for the following reasons:
• it achieves diversification from the more traditional asset classes...

Upcoming structural game changers - SA retirement and savings reform and new regulatory requirements
SA treasury has ventured onto a route of regulatory reform of the financial services industry in the belief that this will promote saving and benefit the consumer. Will this reform achieve what it aims to achieve if it is based on flawed assertions?

• Are administration costs in SA high relative to global experience as claimed in a government white paper...

Opportunities in African private equity
Regulation 28 requires of Namibian pension funds and insurance companies to invest 1.75% of market value of investments in unlisted equities. Trustees will have to acquaint themselves with this topic.

• Africa has a large funding gap which presents an opportunity for private equity investment...

The great reversal: an analysis of the potential effects of capital outflows on selected African countries
The strong growth in local equity markets, a strong currency and a low interest rate environment locally is the result of large scale intervention by monetary authorities particularly of developed countries. The strong growth of foreign portfolio investments that have produced these results are likely to revers, which will impact on local financial markets as a matter of course.

• Egypt - foreign participation in bond issues has declined substantially and the TB rate increased from below 14% to 16%, while other economic fundamentals are also worsening...

Read the full version of Part 2 and more interesting observations here...

RFS and Benchmark festive season dates

Please remember that our office will be closed starting Monday 23 December and will reopen on Thursday 2 January 2014.

RFS sponsors Gimmie Cricket

• integration;
• education and communication;
• consistency with an organisation's values;
• regular reviews.

"An engaged workforce is more productive" concludes the article

Read the article in Personal Finance of 17 March here...

Trustees' dilemma: should minor members' funds be used to save the family home?

The title of this article speaks for itself. It deals with a very practical dilemma that we have come across at one of our clients. Robyn Cowie offers some useful guidance how to deal with this dilemma, suggesting that, to take a decision, the trustees need to determine:

• how many people live in the home;
• who will benefit from saving the home;
• can other people who benefit also contribute and if so how much;
• does the minor member actually live in the home;
• what is the current market value of the property;
• what is the age of the minor member.

Read the full article by Robyn Cowie, Legal Director of Fairheads Benefit Services, which appeared in Pensions World of Pensions World of September 2013 here...

Media snippets
(for investors and business)

Chase isn't the only bank in trouble

"There are multiple scandals blowing up right now, including a whole set of ominous legal cases that could result in punishments so extreme that they might significantly alter the long-term future of the financial services sector. As one friend of mine put it, "Whatever those morons put aside for settlements, they'd better double it." writes Matt Taibbi.

"Firstly, there's a huge mess involving possible manipulation of the world currency markets. This scandal is already drawing comparisons to the last biggest-financial-scandal-in-history (the Financial Times wondered about a "repeat Libor scandal"), the manipulation of interest rates via the gaming of the London Interbank Offered Rate, or Libor. The foreign exchange or FX market is the largest financial market in the world, with a daily trading volume of nearly $5 trillion."

This is a very interesting article indeed as it has occurred to us for quite some time until fairly recently, that the SA Rand has seen strong swings mostly on the last business day of a month - did this have anything to do with the currency manipulation referred to?

Read the article in Rolling Stone of 5 November 2013 here...

Global issues facing financial markets

An interesting preview of what global financial markets may face over the next few years, particularly in the light of the ending of quantitative easing and the end of a low interest rate environment.

Read the article that appeared in FAnews of 21 November 2013 here...

Wall Street slips; Fed minutes hints of taper in the next few months

While Fed officials said such a move would happen only if economic conditions warranted it, some analysts said the minutes suggested the central bank may be getting closer to reducing its bond-buying program.

Read the news item in Reuters of 21 November 2013 here...

What does a fraudster look like

"Fraud specialists have long debated whether it is possible to develop a profile of a fraudster that is accurate enough to enable organisations to catch people in the act of fraud or even beforehand," says Déan Friedman, leader of KPMG's Investigations Network in the Europe, Middle East and Africa region for the Global Forensic practice.

Characteristics of the typical swindler

• 36 to 45 years of age (with 70% of fraudsters between the ages of 36 and 55).
• Employed in an executive, finance, operations or sales/marketing function.
• Holds a managerial or executive position (25% and 29% respectively).
• Employed in the organisation in excess of six years.

An opportunistic fraudster - first-time offender, trusted employee, in a position of responsibility, perpetrator's alleged behaviour comes as a surprise to others. Predators, someone who seeks out an organisation to start a scheme almost immediately up upon being hired and deliberately defrauds the organisation with little remorse, are less common.

Read this interesting article in MoneyMarketing of 14 November 2013 on a study conducted by KPMG here...

And finally...

"My dad had a difficult time keeping a job because he always felt the need to speak to management when he didn't agree with their decisions ... which was always. This taught me the importance of being strategic with your voice and the importance of keeping a job." ~ from Investopedia Staff's Fatherly Investment Advice

Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.