STANLIB Press ReleasesWeek ending 3 September 2004

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Business Day Company News Interest rate cut takes listed20 August 2004 property funds by surprise

Finance Week Outperformance is the game 09 August 2004

Finance Week What to do with your money09 August 2004

Finance Week Breaking into untapped retail 09 August 2004 market

Finance Week Supplement Compaies target unlisted09 August 2004 market

Finance Week Currency complications16 August 2004

Business Report Sunday Argus Investors warned against 08 August 2004 China’s candyfloss boom

Insurance Times & Investment Poor Times 01 August 2004

Insurance Times and Investment Top of the class01 August 2004

Investment Strategy Blending styles ‘is the August 2004 solution’

Executive Business Brief Retirement trustees feeling 01 August 2004 vulnerable

Sake Rapport Olie-borstrok knel nog lank15 August 2004

Finansies & Tegniek Die wisselkoersfaktor16 August 2004

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16 August 2004Business Day Company News

Liberty to use Standard as getaway to African market

LIBERTY Life plans to use its bancassurance relationship with Standard Bank to grow its business outside SA Since the launch of Charter Life Namibia in May, Liberty has had its sights set on Uganda, Kenya, Mozambique, Swaziland and Botswana. Now it is applying for a licence to operate in Uganda, the most significant country outside of SA for Standard Bank in terms of its branch network and market reach Charter Life is the division of Liberty focused on the mass market Charter Life Namibia earned premium income of N$1,3m by the end of June. “It’s breaking even, but not making huge amounts of money,” says Liberty CE Myles Ruck He does not see Africa outside of SA becoming a huge contributor to profits going forward Ruck says it was “almost a no-brainer” for Liberty to use its bancassurance relationship with Standard Bank in these markets “We have an understanding with the bank that if we feel it is appropriate we will take bancassurance into the markets where they are “If it’s a market we don’t want to move into, they are free to speak to someone else. Ruck says sales would be limited to funeral and credit-life products. The group would also continue to be a domestic life assurer, rather than an African or international player, he says. In the case of Namibia, Standard Bank was in a partnership with another life assurer, which Liberty said did not make sense. “We have filled that successfully with very low capital outlay,” he says. We are not going to do it all at once, but will take it as it comes. Stanlib, the joint asset manager of the two groups, is also active in African markets outside of SA. Of the R185bn in assets Stanlib manages, about R5,5bn is outside of SA. “It has grown over the past two years, and continues to grow. More assets are going to be coming up for management with the Kenyan government privatizing some state assets,” Ruck says. Mike Garbutt, head of distribution at Liberty, says one of the reasons for the successful bancassurance relationship between Liberty and Standard Bank was the bank’s dominant position in the partnership. Standard Bank owns about a third of Liberty Group through its controlling stake in Liberty Holdings. This meant that it was in Standard Bank’s best interests to sell Liberty policies. A further incentive came from a profit-sharing agreement in the joint venture that sold the policies. “Because Standard Bank owns Liberty, we have seen a lot more co-operation than you would get if it was the other way around,” Garbutt said. “Worldwide, bancassurance has always worked best when the bank was dominant.” Although the relationship was working very well in the individual life business, Garbutt said the potential to sell corporate business had not yet been realised. “There is no doubt that the bank is sitting on a massive opportunity for corporate benefits through bancassurance,” he said. Instead of selling business through Standard Bank Financial Consultants, which sells individual policies, he said senior executives from the bank would be working with Liberty’s own employee benefits experts to market products to the companies that banked with Standard.

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20 August 2004Business Day Company News

Interest rate cut takes listed property funds by surprise

The 50-basis-point interest rate cut came as a surprise to the listed property sector, which is now poised to benefit substantially in terms of growth in distributions to investors in property stocks. Property commentators say the cut means listed property funds will now have lower interest costs on the portion of their loans that are “floating”, or not fixed. The cut may also lead to renewed confidence in SA’s economy, resulting in an increase of space let in the office property and industrial sectors, they say. This may boost the industrial and office property sectors. Colin Young fund manager of Old Mutual’s SA-listed property funds – which include the Old Mutual SA Quoted Property unit trust – says listed property unit trusts stand to benefit more than listed property loan-stock companies from the reduction in interest rates. The reason is that some listed property unit trusts, such as Sycom and Grayprop, have yet to take advantage of their increased borrowing capacities. In the past, listed property unit trusts could borrow only up to 5% of their total assets, but with the introduction of the Collective Investment Schemes Control Act, promulgated last year, they can borrow up to the value of 30% of their total assets. Young says funds such as Grayprop and Sycom, which have large property developments in the pipeline, are going to use debt to fund these developments and fix it at the lower interest rates. “This means less interest costs in the income statements and more profits, and therefore higher distributions to unitholders.” On the other hand, a large portion of the debt of listed property loan-stock companies is already at a fixed interest rate so they have less opportunity to benefit from the rate cut, he says. Young says the cut will also spur economic growth rates in SA. This in turn will lead to greater demand for office space in the medium term. This benefits listed property funds because the rentals they charge for a square metre are likely to increase. Young says this has positive benefits for the office property market, which has been weak for a number of years as a result of oversupply of space. He says now may be the time for listed property funds to seek out investment opportunities in the office property market. Mariette Warner, fund manager of Stanlib Property Income Fund, believes the reduction in interest rates will benefit the listed property sector across the board because the bond market reacted positively to the cut. The performance of the listed property sector tends to track the performance of the bond market because they are both income generating investments. Warner says any of the property funds with interest rate fixes that are maturing will soon benefit. Those listed property companies with a large amount of debt in floating interest rate facilities will benefit immediately from the cut in interest rates, says Warner. Anton de Goede, investment analyst at Catalyst Securities, says the benefit of the interest rate cut is two-fold for the listed property sector. “It will benefit long bond rates which are used as a proxy in the valuation process of listed property stocks because when bond yields come down that equates into a capital value appreciation,” says de Goede. Secondly, he says listed property funds will have a lower interest cost on the portion of their loans that are not fixed. “That will flow into distribution growth.” While De Geode also believes a general spin-off from the interest rate cut within the economy could be increased business confidence, he says this will relate specifically to the industrial sector. This could benefit listed property funds further, especially those with industrial property portfolios. De Geode says the rand devalued when interest rates were cut. This means the weaker rand will benefit SA’s export industry, positively influencing the industrial property sector.

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9 August 2004Finance Week

Axe your ‘adviser”Why pay fees to someone you haven’t heard from in years?

THERE must be many people like me who, particularly as the years pass, don’t pay close enough attention to letters and forms and statements from financial institutions, those parasitic leeches on the community of man. Recently, for example, I queried charges on an annuity under the headings : Management Fees; Financial Adviser and Managements Fees; Stanlib Admin Fee. A polite young man from Stanlib advised me that the financial adviser was the broker who originally sold me the annuity those many years ago. By the way, these fees for the first quarter of this year on this small annuity were R394,34, while the total interest earned amounted to a handsome R956,98 – which means that the fees amounted to more than 40% of the income return that Stanlib laboured so mightily to achieve for me. These fees total 1% of the capital sum, with half going to Stanlib for its admin costs and the other to the broker – from whom, incidentally, I’ve not heard from in years. Here I am paying him almost R60/month and he doesn’t even phone me. Anthony Katakuzinos, an executive director of Stanlib, then kindly explained to me that what I have is n ELLA, or Equity Linked Life Annuity (administered not by an insurance company) that’s invested, at present, about 50/50 in equities and the money market. Harry Truman once remarked that as US President what he longed for was a one-handed economist. Thus, as Katakuzinos explained it to me, on the one hand the ELLA give me flexibility to manage the investments and enables me to leave what might be left of the capital sum to my family when I depart this mortal coil. On the other hand, the ELLA exposed me to risk with no guarantees as to capital or income being grown or even preserved. With a normal pension fund annuity, such as one I have with Old Mutual, one never sees the capital again but one is guaranteed an income. Of sort. Now, coming or going, it’s the consumer of these investment products who gets screwed. However, one interesting piece of knowledge I gleaned from my encounter with the pleasant folk at Stanlib is that I, or any other holder of an ELLA, can fire the financial adviser by merely writing to the insurance company and telling them you no longer wish to pay him. However, you’ll then be on your own without your trusted financial adviser ie, broker, to tell you when to switch out of an underlying investment and into something else. This is not rocket science. A long-term split between growth and income – with the shift toward income as you age and your needs change – would seem to fit the bill. Just select successful performers such as Allan Gray and go play golf. What irritates me is that I’ve paid this hot-shot financial adviser, ie, broker, thousands of rands over many years and I’ve had no service whatsoever in return for this money. Thank goodness it’s not a serious amount. It occurs to me that there must be many others, particularly those with long teeth (from receding gums, you know), with ELLAs who are unwittingly paying

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9 August 2004Finance Week

out each month quite useful sums of money to people who provide them with no service whatsoever. The good news is that you can fire them and stop paying them. You won’t – so the polite young man at Stanlib told me – be able to get back any of the money you have been paying out for years but at least you’ll stop paying for services that are never rendered, a most irritating state of affairs. So dig out your insurance and pension bumf and check carefully what fees are being charged. Our insurance companies are notorious for their opaque ways. They don’t want us to know how they’re screwing us. But if you’re in ELLA and you don’t want to pay forever for advice you don’t get, then this is at least something you can do to fight back.

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Outperformance is the game

STANLIB Unit Trusts recently launched two Products : the Stanlib Flexible Income Fund and the Stanlib Balanced Trustees Fund of Funds. The Managed Flexible Fund is aimed at conservative investors who want optimal returns from conventional fixed interest portfolios, such as money market funds, income funds and bond funds. “The biggest difficulty for the individual investor is suitably weighting resources to any one or a combination of these and managing them on a day-to-day basis without the necessary expertise or required research input,” says Trurman Zuma, head of Stanlib’s Single Manager Unit Trusts. “It’s evident that it’s a highly specialised business and therefore requires experts to make the right calls.” That’s where Stanlib believes that it’s able to add considerable value, boasting one of SA’s strongest fixed interest teams. Headed by Henk Viljoen, it manages more than R40bn in fixed interest products. Viljoen’s team will make the calls on the new product, with durations varying between a one day fixed deposit and seven years. Says Viljoen : “We’re very proactive managers. We monitor the market by the hour and we utilize opportunities of weakness and strength to optimize our portfolios. At the same time we’re careful not to become overweight at the extremely long end or extremely short end of the market. Our success is the result of a team effort. We call on a diverse range of skills. They all make a full contribution.” Over the past four years Stanlib has outperformed the all-bond index by 2%/year.Stanlib Client Services director Anthony Katakuzinos says : “There’s slightly more risk than, say, and individual money market or income fund. But the potential benefits are more than justified. If Viljoen’s team gets all its calls right the fund will outperform bond funds, income funds and the money market.“IF it gets it half right it’ll at least outperform the income fund. And if he gets it all wrong – which is most unlikely – it’ll underperform even the money market.” The fund has attracted R180m in six weeks.The Balanced Trustees Fund of Funds, also on the relatively conservative side, is aimed at what Katakuzinos describes as “a middle of the road balance for conservative investors and positioned on a trustee-type platform”. It comprises 50% fixed interest (aimed at generating regular monthly income) and a 50% spread of equities and fixed interest instruments (aimed primarily at generating longer-term asset growth. The latter breakdown is roughly 15% in a multimanager portfolio, up to 10% in income, bond and property funds, between 10% and 25% in SA equities and the balance in offshore exposure.John Koel, Stanlib’s chief investment officer, and Ian Woodley, head of equities, manage the fund.“We haven’t added a significant cost over the actual overlay of managing the platform – it feeds into our existing Stanlib funds and is an extra 0.5%,” says Katakuzinos.                                              

Finance Week9 August 2004

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What to do with your money‘JSE should benefit from a synchronized global recovery’

A STRONG trend remains for people to direct most of their savings into fixed interest investments, mainly income funds. But they shouldn’t overlook the importance of equities if they want to generate real, long-term wealth. That applies especially to people under the age of 45 and looking to retire in the next 15 to 25 years. This advice comes from Stanlib Wealth Management client services director Anthony Katakuzinos. “Around 15 months ago we warned that if investors remained exclusively in fixed interest investments they’d miss out on the excellent opportunities that the share market offered and be faced concurrently with a drop in interest income. “The JSE Securities Exchange’s all share index has risen by more than 30% during this period and, with the exclusion of resources shares, the improvement has been considerably better. And interest rates dropped by 5,5% over the same period. “Though investors shouldn’t expect that to continue indefinitely, attractive opportunities nevertheless are still in the offing. The market’s undervalued and the expected return will be higher than bonds. Moreover, global growth is strong and the JSE should benefit from a synchronised global recovery.” For example, Katakuzinos says that listed industrial companies (excluding resources) will show earnings growth of between 10% and 15% over the next year – which, in turn, will drive their share prices. “Select retailers are benefiting from strong demand due to low prime lending rates, the strong rand and its boosting of imports and the wealth effect of strong house prices.” The interest rate environment is also making listed property look a little more positive than it did three month ago. “I thought then we were set for an increase in interest rates in the second half of 2004 but now the situation’s different. Property gives investors the opportunity to benefit from the growth in rental income over, say, a three- to five-year period and also allows for some capital preservation,” says Katakuzinos. “Property funds are attractive relative to money market and income funds, with a yield of approximately 9,95% net of annual management fees. Property company earnings have bottomed and divided payments could increase by 4% in the next 12 months, resulting in yield increasing to more than 10,5%. Mariette Warner, Standard Bank Property Income Fund manager, is expecting a total return of 15% over the next 12 months.” Stanlib retailing director Paul Hansen says that investors should be less fixated concerning the massive appreciation of the rand over the past 30 months and focus increasingly on diversifying their portfolios offshore. “The issue should be placed in perspective. In 1980 it cost US$1 to buy R1. Today, it costs $0,16 to buy one rand. So the rand is still 84% down on its 1980 value. That translates into more than 7,5% depreciation/year for 24 years and still above 5,5% depreciation/year over the past 10 to 15 years.” Hansen estimates that the rand is currently 16% overvalued relative to a basket of currencies of SA’s main trading partners. He says that apart from the currency factor SA investors shouldn’t ignore the fact that SA comprises only 0,6% of the world’s stock markets. The remaining 99,4% includes companies whose products and services are used daily, such as Nestlé, Glaxo, IBM, Microsoft, Ford and Kellogg’s.If you hold cash offshore, Hansen’s advice is to ensure that your US dollar exposure is only a small percentage of your portfolio, because the greenback appears again to be declining against the euro, sterling, yen and Swiss franc.                                              

Finance Week 9 August 2004

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Breaking into untapped retail marketPreviously disadvantaged one target

ANTHONY Katakuzinos has been appointed director of Client Services at Stanlib and replaced as head of Unit Trusts by Trurman Zuma. Katakuzinos, 41, was head of Standard Bank Unit Trusts prior to the merger between Standard Bank Asset Management and Libam 30 months ago, and is highly respected in SA’s unit trust industry. A Wits University commerce graduate and chartered accountant, he spent 10 years with accounting group KPMG before joining Standard Bank Unit Trusts as Financial manager, later becoming MD. Says Katakuzinos : “The whole merger is out the way and it’s now time to ensure that we significantly uplift our levels of service. I’m not suggesting that we’re doing badly, but we aim to entrench ourselves in the number one position in the industry in terms of client services. Besides, there are a lot of things that we can do better – and that’s precisely what we’re setting out to do.”Zuma, 32, followed a similar route. A product of Hilton College and commerce graduate of Natal University Durban Campus, he also completed his articles at KPMG. He then went on to Old Mutual Asset Management as an analyst in the consumer/industrial sector, followed by the Standard Bank Group on the corporate finance side. He was also involved in the final stages of setting up the Financial Services empowerment Charter. Zuma says that though his new appointment is multidimensional it particularly provides a fresh perspective on leveraging the previously untapped market. “Having grown up in the township and the generally black environment I understand a lot of the dynamics that the previously disadvantaged are having to face.“I’m not suggesting that the traditionally white-managed financial houses have got it wrong in entering this market but perhaps they’ve misunderstood or underestimated what the customer base is all about. A business decision has been made going forward and it now has to be robustly applied.“The previously disadvantaged market fits in with Stanlib’s business plan and the likes of myself have been tasked with applying our minds and seeing if we can find solutions that can be sold to that market.”Zuma says that considerable potential lies in doing business with stokvels (African collective financial schemes). “I know a lot of people who could do well in that space. It’s easier for me to talk to them than others unfamiliar with them, for example. If I can get a group to tap into that market it could be highly effective.”Katakuzinos says that given that Stanlib places a high premium on the charter it’s essential to introduce more of the previously disadvantaged into the financial fold. “It’s essential for both SA’s economy as a whole and the financial services sector in particular. So one of Zuma’s challenges is to establish a business model that’ll fit into that market and growth base.”

Finance Week 9 August 2004

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Companies target unlisted market

EMPOWERMENT companies are increasingly turning to the unlisted market for new acquisitions, particularly mining services companies that must build their empowerment credentials in order to compete for new business.The Mining Charter insists that SA’s established mining companies procure a larger part of their services from black owned or empowered companies. The pressure on existing procurement companies to empower themselves is, therefore, significant.Bridgette Radebe’s Mmakau Mining recently bought a 26% stake in Shaft Sinkers, a company that specialises in underground construction, tunnelling and shaft-sinking. In June the Tiso Group bought a 25,1% stake in AEL, the explosives business of chemical group AECI. And Sandile Zungu, CEO of African Vanguard Resources (AVR), is considering a similar investment, possibly in a steel piping business that supplies mines.Part of the interest in private companies is that they don’t necessarily command the large premiums of their listed counterparts. Darryll Castle, portfolio manager for Stanlib, the asset management company that has a 20% stake in AVR, says that listed entities still tend to value themselves on last year’s figures, when the rand was weaker against the US dollar than it currently is. “Many assets are still configured at R7 or even R8 to the dollar,” Castle says.Zungu says that there’s a powerful case for companies such as his to select their targets carefully. He identifies two types of strategies through which empowerment firms have attracted assets. One is to establish a footprint in the style of Mvelaphanda Resources, which, put crudely, is a land-grab tactic. The other is to buy marginal assets other companies no longer need. That’s how Patrice Motsepe’s gold business started before listing ARMGold and, eventually, merging into African Rainbow Minerals.Zungu prefers a combination of both strategies. However, in the acquisition of mining services companies caution is needed because many mining services entities, while seeking empowerment credentials in order to compete for business on the mines, are under pressure. The effect of the rand is drying up growth projects – a development that’s bound to influence a company such as Shaft Sinkers.Meanwhile, Zungu is keeping an open mind on future co-operation with Afrikander Leases, a company with which he’s been connected in the past. There’s also the ongoing option of buying Kalgold, an open pit mine currently owned by Harmony Gold.As for listing, Zungu says that more critical mass is needed. “As an unlisted company there’s no pressure,” Zungu says.

Finance WeekSupplement

9 August 2004

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Currency complicationsHedging frees analysts to perform their task

CURRENCY movements complicate foreign investment decisions and the returns from offshore assets. Though forecasting currencies is probably the most inexact economic science, it remains a critical consideration for foreign fund managers.“In equity funds, returns can depend as much or even more on the currency of the country a stock is in than on the stock itself,” says Paul Hansen, director of retail investment at Stanlib.However, fund managers can largely offset the effect of currencies through effective hedging strategies. Nicholas Purser, director at Orbis Advisory Services (associate of Allan Gray in SA), says that investing should be a straightforward discipline. “One looks to buy assets for below one’s assessment of the current worth of their future returns. By buying these assets one should profit over the long term, either through the sale of the asset at a higher price or by receiving the future returns in the form of dividends.”But when selecting assets globally this straightforward view gets complicated by exchange rate movements. “One might find that equities in Japan appear to offer good value compared to their current price in yen. However, to investors who measure their wealth in US dollars, buying these equities will create exposure not just to the performance of the companies but also to the performance of the yen against the dollar. If the yen depreciates by more than the stocks appreciate, the end result is a negative return.”As a basic strategy, Orbis funds define a currency benchmark and will hedge a stock by selling a similar percentage of the currency the stock is priced in.This policy allows the fund’s analysts to focus on selecting equities that are good value globally based on current exchange rates without having to worry about future changes in exchange rates.

Finance Week 16 August 2004

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Business ReportSunday Argus

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8 August 2004

Investors warned against China’s candyfloss boom

Johannesburg – High growth in lending, low interest rates, rife unrealised bad debts and low provisioning may lead to an overextended banking system that may be the key risk to China’s magnificent growth, according to Jeremy Hosking, the chief executive of Marathon Asset Management.“We expect the economic boom in the Chinese economy to continue, we just don’t expect [Chinese share] investors to make much money from it,” said Hosking at the Stanlib investor conference in Sandton this week.The CIA World Factbook describes China as the world’s fourth-largest country with a total land area of over 9 million square kilometers. Only Russia, Canada and the US are larger. It is the most populous country, with just under 1.3 billion people.For years China stood as the leading civilization, outpacing the world in the arts and in the sciences. But in the 19th and early 20th centuries, China was beset by civil unrest, famines, military defeats and foreign occupation.Since China started its market economy reforms in 1978, the gross domestic product (GDP) had quadrupled. The factbook asserts that, measured on a purchasing power parity basis, China stood as the second-largest economy in the world in 2003, with GDP of $6.5 trillion (R40.3 trillion). At current growth rates, China will become the largest economy in the world.“It is the sheer size of the country which causes people to suspend rational analysis,” Hosking said.Hosking pointed out that while many companies that had invested in China had shown phenomenal growth, few had achieved good returns for shareholders. Those that had done well tended to contribute either technology or knowledge to the party, or were involved in outsourcing, where cheap labour markets give china a competitive advantage.Sourcing cheap product from China is also a successful model, as is providing China with commodities, as many South African mining companies do.Low labour costs give China a large competitive advantage; basic wage rates are a fifth of those in South Africa and a 20th of those in the US.Wedgewood, for example, can lower the cost of product landed in the US by 75 percent when it moves production to China from Stoke-on-Trent in Britain.But growth in the Chinese capital markets is likely to continue apace.As Charles Dickens said, when writing about the London Stock Exchange in 1857 : “These investment fashions have always been with us and almost always come to a sticky end.”

Insurance Times & Investment 01 August 2004

Poor timesRetirement fund trustees seeking low risk options

POOR RETURNS are making retirement fund trustees a bit twitchy, fearing legal action by tetchy members. Consumers are getting only too wise about the machinations of the financial world, and there’s no longer the easy way out for errant financiers.Not surprisingly, there’s an increasing demand for trustee training; and a desire for more low-risk, low-equity options for fund members, especially for those approaching retirement; then there is an increasing interest in multi-management investments solutions. Trustees are also mindful of the impending legislative changes, including Regulation 28 of the Pension Funds Act, which details their duties and legal responsibilities.Dylan Evans, investment marketing director of Stanlib, says a split between investment training carried out by asset managers and training on legal and fiduciary responsibilities could best be handled by professional third-parties. “It is no coincidence that retirement funds are increasing the number of low-risk investment options available to their members. Although many retirement funds do not significantly change the overall asset allocation of their core portfolio – in line with a key Myners Report recommendation – many schemes in South Africa have introduced low-risk, low-equity options for members approaching retirement.“Trustees have realised they must offer these options or face the risk of being accused of negligence. Another trend that may be linked to a heightened sense of trustee vulnerability is renewed growth in the multi-management sector.”In the UK, in the wake of the Myner Report, there was a swing away from single manager investment mandates to multi-manager mandates as trustees realized they did not have the skills to monitor managers effectively.

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Insurance Times & Investment 01 August 2004

Top of the classWhat is quantitative investing?

IN THE three years to end April 2004 the Stanlib Quants Fund has achieved a return of 65,29% and this, the company says, is statistically significant proving a ‘three-year test’, which puts it top of the class.’Sean Segar, head of product development at Stanlib, adds that the three-year fund outperformed its benchmark “at relatively low risk.”The Quants fund uses quantitative (or mathematical) models to drive stock selection and is seen as a “medium-risk investment.”Says Mr. Segar, “Over the same period we saw risk-averse savers and investors committing to money-market instruments and achieving after-tax returns that lagged the official inflation rate. This was understandable after the meltdown that occurred on some markets until early 2003. “However, it is important that confidence be restored in solid, medium-risk investments with the potential to grow wealth. Results by the Quants Fund will hopefully draw the attention of prudent investors looking for real returns. Those hoping to supplement pension entitlements by creating their own savings and investments plan could consider this product.”Micropal figures show that the STANLIB Quants Fund has been first in its sector over the three years since its inception with the highest annual return for the third lowest risk. It did more than one-and-a-half times better than the sector benchmark for Flexible Asset Allocation Funds (which is the unit trust sector in which the fund resides) and more than three times better than the FTE-JSE All Share Index.The easiest way to understand what ‘quantitative investing’ is all about is by thinking of John Keynes’ “Beauty Pageant Analogy”. When asked which contestant was expected to win the pageant. Keynes said that people tended to choose the girl they liked, rather than the girl the judges seemed to like. Keynes explained that fund managers tended to choose stocks that they liked, rather than stocks that the market liked. Quantitative investing on the other hand seeks to strip out the emotion associated with investing and choose stocks that the market will like : thus anticipating popularity and therefore gaining an advantage.The team behind the development of the Stanlib Quants Fund points out that this category of product is not a novel or exotic investment operating outside the regulatory system; but is a registered unit trust, with FSB-endorsement.To encourage broad participation the minimum investment has been set at R2 000 or R200 per month for debit-order investors.

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Investment Strategy

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August 2004

Blending styles ‘is the solution’

A number of overseas asset managers and at least one local asset manager believe they have the solution to the problem of finding a suitable growth and value manager for your equity portfolio, The answer, Stanlib says, is a single portfolio that blends the styles. According to Dylan Evans, the company’s director of institutional marketing, these portfolios can be weighted towards either growth or value shares, allowing a fund manager to take advantage of either cycle. One of the benefits of blending the two styles is that the fund managers can rebalance your portfolio. This is more complicated when you are invested separately in both growth and value portfolios, particularly when one style is doing much better than the other. While it offers both value and growth unit trusts, Stanlib believes a blended portfolio that follows the growth at a reasonable price (Garp) investments philosophy is the best option for mainstream institutional retirement funds. Stanlib’s argument is that Garp allows portfolio managers to tilt their portfolios according to whether the market is following a growth or value cycle, taking advantage of both. A Garp stock offers reasonable value relative to the market, but also offers above-average growth prospects. While Garp shares are a less clearly definable universe than growth or value shares because “reasonable” is a subjective term, it is a much larger universe and one that offers a much broader range of choice, Evans says. It is also where money can be made if an asset managers’ research is thorough, he says. In fact, Stanlib manages the major portion of its institutional retirement funds assets according to its Garp philosophy, as it finds this approach more flexible than the rigid growth or value styles. “Investing in growth stocks is fine when the market is going through a growth cycle,” Evans says, “but when the music stops, losses can be significant.“In early 1998, investors couldn’t buy enough growth stocks, but when the emerging markets crisis hit in October 1998, all the previous year’s gains in most growth stocks were wiped out, as the market shifted into a defiant value phase,” Evans says. However, Stanlib also considers it to be just as “imprudent” to adhere to a rigid value style, Evans says. This is not only because the value cycle may end, but because many value stocks can for years remain relatively cheap compared to the market, until a catalyst unlocks the value. The catalyst might be a change of management or a new product. “To stick rigidly to that value stock before the catalyst unlocks its value is to suffer considerable opportunity cost,” Evans says. Garp “also allows much more fluidity when it comes to stock selection, since the analyst can make money by identifying value stocks about to move into the growth universe and avoid losing money by identifying growth stocks which are about to be derated and possibly fall all the way back into the value universe”, he says.Despite the fact that Stanlib advocates its Garp style of investment as the core or satellite approach for big retirement funds, there will always be a place for style investing, Evans says. Big retirement funds, he says, are now less willing to split their asset between many asset managers all doing the same thing by effectively investing in the broad market. “It makes much more sense for them to invest according to a core/satellite approach, whereby the bulk of the assets are given to a good core Garp manager while smaller ‘satellite’ portfolios are given to identifiably above-average growth and value managers. “Over time, this will mean the fund benefits from all market cycles. The fund can increase its exposure to the satellite portfolios according to whichever cycle is running, without tying its fortunes exclusively to that cycle, which it would do if it ignored the core Garp universe.”

1 August 2004Executive Business Brief

RETIREMENT TRUSTEES FEELING VULNERABLE

THE first signs are coming through that retirement fund trustees are feeling vulnerable to an increased risk of legal action by members in the event of poor returns, says Dylan Evans, the investment marketing director of Stanlib. He says that trend-spotters at Stanlib, while tracking developments in the retirement fund managements sector ahead of key legislative changes due later this year, have spotted three key trends in this regard :Increasing demand for trustee training;Increasing availability of low-risk, low-equity options for fund members approaching retirement; andIncreasing interest in multi-management investment solutions.The impetus for trustee training has been linked to new legislation, including regulation 28 of the Pensions Act which spells out the duties and legal responsibilities of retirement fund trustees. But there are also parallels between local efforts to protect retirement fund members, and initiatives in the UK that have arisen from the publication three-and-a-half years ago of the Myners Report. One of that report’s recommendations was that inept or unethical trustees should be taken to court and sued in their personal capacity for financial losses. This prompted an upsurge in UK demand for trustee training. Evans says that such increased demand for training is to be welcomed, and suggests a split between investment training carried out by asset managers, and training on legal and fiduciary responsibilities that could best be handled by professional, third-party trainers.More choiceIt’s also no coincidence that retirement funds are increasing the numbers of low-risk investment options available to retirement fund members. Although many retirement funds haven’t significantly changed the overall asset allocation of their core portfolios – in line with a key Myners Report recommendation – many scheme in South Africa have nevertheless introduced low-risk, low-equity options for members approaching retirement. This is because trustees have realised that they must offer these options or face the risk that members could accuse them of negligence by failing to provide such a choice. Another trend that may be linked to a heightened sense of trustee vulnerability is renewed growth in the multi-management sector. In the UK, in the wake of the Myners Report, there was a swing away from single manager investment mandates to multi-manager mandates, as trustees realised they did not have the skills to monitor managers effectively. Evans, however, doesn’t believe that trustees concerns are driving a local trend to multi-management to anything like the same extent. He explains that South Africa has fewer managers than the UK, and that there’s therefore less opportunity to diversify across different investment styles. The country does, though, have some excellent asset consultants, who can blend single managers to produce optimal risk-adjusted strategies for larger funds. However, Evans expects to see multi-managers continue to gain market share in the small to medium-sized retirements fund segment.

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Olie-borstrok knel nog lank

Die wêreld kan hom staal om tot einde aanstaande jaar deur hoë oliepryse geknel te word. Die olieprys het Donderdag op die New Yorkse mark tot $45,75 per vat gestyg – die hoogste die afgelope 21 jaar. Die vraag na olie sal na verwagting eers einde aanstaande jaar begin afplat namate ekonomiese groei wêreldwyd verlangsaam. Die politieke onsekerhede in die vernaamste olieproduserende lande kan die aanbod nog geruime tyd rem. Tot dusver het die sterk rand Suid-Afrika beskerm teen die hoë olieprys, maar noudat die nuutste verlaging in rentekoerse die rand laat verswak, kan die olieprys dalk hier ook koste- en inflasiedruk aanwakker deur ‘n skerp styging in die petrolprys. Dis juis oor die maag van die olieprys om inflasiedruk deur sekondere prysstygings aan te wakker en groei te temper dat markte negatief reageer op die hoër olieprys. Ná die styging in die olieprys Donderdag het al die Europese en die Amerikaanse mark(te) skerp gedaal, hoewel dit net een van vele redes was wat die afgelope week die markte beïnvloed het. Mnr. Kevin Lings, ekonoom van Stanlib, sê in Amerika sal die hoë olieprys en die daarmee gepaardgaande stygings in energiepryse verbruiksbesteding knou. Uit Amerikaanse statistieke blyk dat verbruikers nie minder aan brandstof bestee as die pryse styg nie, maar besteding aan ander verbruiksartikels inkort. Die nuutste syfers oor verbruiksbesteding, wat ‘n geweldige dryfkrag in die Amerikaanse ekonomie is, was juis teleurstellend.Die hoër olieprys sal beslis ook inflasionêre druk veroorsaak. In die geheel sal dit die groei in Amerika strem. En almal weet wat die uitwerking daarvan op die res van die wêreld is. Die vraag na olie in Amerika sal waarskynlik nie gou afplat nie, sê mnr. Ulrich Joubert, groepekonoom van Transnet. Die einde van die somer is in sig en teen Oktober sal olievoorraad aangevul moet word om genoeg op te bou vir die lang winter. Met die huidige beperkings op produksie en omdat die seisoenale vraag eers teen Maart/April sal afplat, sal die olieprys nie gou tot onder $40 per vat daal nie, sê hy. In Europa sal die hoër olieprys dieselfde dempende uitwerking op die ekonomie hê as in Amerika, en ook in dié streek styg die vraag namate die ekonomieë nuwe tekens van lewe toon. Die oorweldigende vraag uit China om die dramatiese ekonomiese oplewing daar aan die gang te hou, gaan nie oornag verdwyn nie en sal verdere druk op die aanbod van olie plaas, sê Joubert. Te midde van al die ander politieke probleme wat die verskaffing van olie kortwiek, kan die lede van die Organisasie vir Oliepruderende Uitvoerlande (Ophul) nie hul produksie verder verhoog nie. Opul-lede het in Julie 30 miljoen vate olie per dag gelewer, wat die meeste is sedert 1979. Ling sê die omvang van die vraag na olie is beslis onderskat. Tans is alle aanduidings dat die vraag sterk sal bly en ‘n hoër prys sal ondersteun. Saoedi-Arabië, wat tans die grootste produsent is, het wel die afgelope week aangekonding dat hy produksie met 1,3 miljoen vate per dag kan verhoog, maar die markte is nie oortuig dat hy dié belofte kan nakom nie. Die meeste huidige produksie-probleme is polities van aard. In Irak duur die oorlog voort. Sjiïtiese rebelle het Vrydag gedreig om pypleidings op te blaas nadat produksie van Maandag af met meer as die helfte – tot net minder as 1 miljoen vate per dag – verminder is nadat ‘n uitvoerpypleiding opgeblaas is. Dit is weer Donderdag heropen.

Sake Rapport

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15 August 2004

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In Rusland, wat die naasgrootste uitvoerder van olie na Amerika is, kan die belastingeis van miljarde dollars teen die oliereus Yukos en die bevriesing van sy bankrekenings hom in bakrotskap dompel. Yukos is die grootste Russiese olieprodusent. Asof dit nie erg genoeg is nie, is daar vrese dat die presidensiële referendum in Venezuela vandag die verskafing van olie uit dié land kan ontwrig. Produksie in die Golf van Mexiko is ook die afgelope week ontwrig weens ‘n tropiese storm. Lings sê die grootste vraag is of die olieprys van meer as $40 per vat volhoubaar is. As gekyk word na die huidig probleme rakende die verskaffing van olie, kan die prys ‘n geruime nog so hoog wees. As dié kwessies opgelos kan word en die vraag terselftdertyd begin afneem, kan die prys daal tot $35 per vat – wat positief deur die markte vertolk sal word. Selfs teen die hoë huidige olieprys is dit nog nie naastenby so erg soos tydens die oliekrisis vroeg in die jare tagtig nie. In 1981 was die gemiddelde prys van olie $31,77 per vat, wat in 2004-geldsyfers gelyk is aan $60 per vat. Die hoogtepunt van $39,00 per vat wat in Februarie 1981 aangeteken is, vandag gelyk aan $73,50.

Sake Rapport

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15 August 2004

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Die wisselkoersfaktorBewegings van geldeenhede is van kritieke belang by buitelandse beleggings.

VALUTABEWEGINGS maak besluite oor buitelandse belegging en die opbrengs van buitelandse beleggings baie moeilik. Die voorspelling van die bewegings van geldeenhede is waarskynlik die mees onpresiese ekonomiese wetenskap, tog is dit ‘n kritieke oorweging vir bestuurders van buitelandse fondse.“By aandeelfondse kan die opbrengs op ‘n aandeel net soveel afhang van die geldeenheid van die land waarin die aandeel genoteer is, as van die aandeel self,” sê Paul Hansen, direkteur vir kleinhandelbelegging van Stanlib.Tog kan fondsbestuurders die uitwerking van wisselings in geldeenhede grotendeels uitskakel deur doeltreffende strategieë vir verskansing te gebruik, Nicholas Purser, ‘n direkteur van Orbis Adviesdienste (‘n filial van Allan Gray in SA), sê belegging behoort eenvoudig te wees : “Jou doel is om bates te koop teen minder as jou bepaling van die huidige waarde van hul toekomstige opbrengs. Deur bates só te koop, sal dit waarskynlik op lang termyn tot jou voordeel wees – óf deur die bate teen ‘n hoër prys te verkoop, óf danksy die toekomstige verdienste deur dividende.”Maar wanneer mens bates wêreldwyd kies, word dit baie ingewikkelder vanweë valutabewegigs. “Jy vind dalk dat aandele in Japan goeie waarde bied teen hul huidige prys in jen, maar vir beleggers wat hul rykdom in Amerikaanse dollar meet, sal die aankoop van die aandele nie net blootstelling gee aan die prestasie van die betrokke maatskappye nie, maar ook aan die ertoning van die jen teenoor die dollar. As die jen meer depresieer as wat die aandele appresieer, is die uiteinde ‘n negatoewe opbrengs.”As ‘n basiese strategie stel Orbis se fondse ‘n riglyn vir ‘n geldeenheid en verskans ‘n aandeel deur ‘n soortgelyke bedrag te verkoop van die geldeenheid waarin die aandeel se prys bepaal word.

Finansies & Tegniek

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16 August 2004