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INVESTMENT INSTRUMENTS ON THE JSE TOOLS AVAILABLE TO INVESTORS SAIFM Investment Conference Nerina Visser, CFA 21 June 2016
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INVESTMENT INSTRUMENTS
ON THE JSETOOLS AVAILABLE TO INVESTORS
SAIFM Investment Conference
Nerina Visser, CFA
21 June 2016
THE ORIGINAL SOUTH AFRICAN INVESTMENT
The discovery of gold on the Witwatersrand in 1886 led to many mining and financial companies opening and a need soon arose for a stock exchange.
The Johannesburg Exchange & Chambers Company was established by a London businessman, Benjamin Minors Woollan and housed at the corner of Commissioner and Simmonds Streets. Out of this the JSE was born on 8 November 1887.
By 1890 the trading hall became too small and had to be rebuilt but this too was outgrown. Trading then moved into the street. The Mining Commissioner closed off Simmonds Street between Market Square and Commissioner Street by means of chains.
In 1903, a new building was built for the JSE on Hollard Street. The building took up an entire city block bounded by Fox and Main, Hollard and Sauer Streets.
After World War II, it became apparent that this building was again inadequate and in 1947 the decision was made to rebuild the stock exchange. It took 11 years before construction began and in February 1961 the second exchange at Hollard Street was officially opened.
In 1978, the JSE took up residence at 17 Diagonal Street near Kerk Street, Johannesburg.
After 108 years, open outcry system of trading changed to an electronic system on 7 June 1996.
In September 2000, the Johannesburg Securities Exchange moved to its present location in Sandton, Gauteng and changed its official name to the JSE Securities Exchange.
On 14 April 2014, the JSE re-branded to demonstrates the bourse's identity as a modern African marketplace that connects investors to growth opportunities not only in South Africa but globally.
HISTORY OF THE JSE
Source: Wikipedia
The discovery of gold on the Witwatersrand in 1886 led to many mining and financial companies opening and a need soon arose for a stock exchange.
The Johannesburg Exchange & Chambers Company was established by a London businessman, Benjamin Minors Woollan and housed at the corner of Commissioner and Simmonds Streets. Out of this the JSE was born on 8 November 1887.
By 1890 the trading hall became too small and had to be rebuilt but this too was outgrown. Trading then moved into the street. The Mining Commissioner closed off Simmonds Street between Market Square and Commissioner Street by means of chains.
In 1903, a new building was built for the JSE on Hollard Street. The building took up an entire city block bounded by Fox and Main, Hollard and Sauer Streets.
After World War II, it became apparent that this building was again inadequate and in 1947 the decision was made to rebuild the stock exchange. It took 11 years before construction began and in February 1961 the second exchange at Hollard Street was officially opened.
In 1978, the JSE took up residence at 17 Diagonal Street near Kerk Street, Johannesburg.
After 108 years, open outcry system of trading changed to an electronic system on 7 June 1996.
In September 2000, the Johannesburg Securities Exchange moved to its present location in Sandton, Gauteng and changed its official name to the JSE Securities Exchange.
On 14 April 2014, the JSE re-branded to demonstrates the bourse's identity as a modern African marketplace that connects investors to growth opportunities not only in South Africa but globally.
HISTORY OF THE JSE
Source: Wikipedia
INVESTMENT IN GOLD COMPANIES – PAST
In the 1970s, gold companies constituted more than half of the
market cap of the JSE.
Today it is less than 2.5% of the All Share Index, representing a
mere five counters.
There are now less than 10 gold companies listed on the JSE, but
some are too small to be included in the Gold Index.
At the end of Dec-2015, for the first time since inception of the
Top40 index, it had NO gold shares in it – however, Anglogold-
Ashanti returned to the index in Mar-2016.
Investment opportunities also include companies that provide
services and equipment to the gold industry.
INVESTMENT IN PHYSICAL GOLD – PAST
Krugerrands
Gold coins
Jewellery
Constraints:
Physical storage capacity
Safe-keeping
Insurance
Liquidity – secondary market trading
INVESTMENT OPPORTUNITIES IN GOLD – TODAY
Physical gold
Exchange Traded Funds (ETF)
Exchange Traded Notes (ETN)
ZAR-denominated
USD-denominated
Krugerrand Custodial Certificates
Gold companies
Shares
Corporate bonds
Unit trusts / Collective Investment Schemes
INVESTMENT OPPORTUNITIES IN GOLD DERIVATIVES
Options / Futures
Quantos
Can-do options
Single Stock Futures (SSF)
Contracts for Difference (CFD)
Depository receipts (DRs)
American Depository Receipts (ADR)
South African Depository Receipts (SADR)
HOW DO YOU MAKE INVESTMENT DECISIONS?
Fund / manager selection
Unit trusts
Security selection
Company-specific analysis
Asset / factor / performance driver selection
What?
How to incorporate this into portfolios?
WHAT IS THE BASIS FOR THESE INVESTMENT
DECISIONS?
Fund / manager selection
Based on observed past performance
What looks / sounds good from the outside
What your friend has or what will make you feel comfortable
Security selection
Fundamental / Technical analysis
“Hot tips”
A good story
Asset / factor / performance driver selection
Selecting the required index / asset exposure
Matched to client / mandate requirements
WHAT SKILLS ARE NEEDED TO MAKE THESE
INVESTMENT DECISIONS?
Fund / manager selection
Understanding the investment style / approach
Trust? Faith? Hope?
Security selection
Financial statement analysis
Industry / sector insights
Price trend analysis, technical analysis
Asset / factor / performance driver selection
Macro-economics
Quantitative techniques
Understanding cause and effect of PEST factors
WHO MAKES THE DECISION?
Fund / manager selection
Multi-manager
Financial adviser
Asset consultant – old style ≡ liability consultant
Security selection
Portfolio manager
Stock broker
Asset / factor / performance driver selection
Investment strategist
Portfolio “assembler”
Asset consultant – new age
WHERE IS IT AVAILABLE, AND TO WHOM?
Fund / manager selection
Directly with Manco – retail & institutional investor
LISP platform – financial advisor / intermediary, fund-of-fund manager
Security selection
Direct transacting through institutional broker
Stock broking / online trading account – retail investor
Asset / factor / performance driver selection
Index-tracking unit trust or segregated portfolio
Exchange traded products – ETFs, ETNs, ETCs
ULTIMATELY
IT IS ALL
TRANSACTED
VIA THE
EXCHANGE
Past Future
THE MARKET OF THE FUTURE
Past Future
Stock broker Online broking platform
THE MARKET OF THE FUTURE
Past Future
Stock broker Online broking platform
“Insurance salesman” Robo-adviser
THE MARKET OF THE FUTURE
Past Future
Stock broker Online broking platform
“Insurance salesman” Robo-adviser
LISP platform JSE / new exchanges
THE MARKET OF THE FUTURE
WHY NEW EXCHANGES?
Role of stock exchanges have expanded from sources of
capital raising, to transacting in financial instruments.
Post 2008 global financial regulations proposed a move from
OTC to regulated exchanges.
Proliferation of new financial instruments and online trading &
investment platforms require execution-only transaction
facilitation.
A growing, diversified range of financial instruments on offer,
creates opportunity for exchanges focussed on niche offerings.
New exchanges without legacy systems and relationships can
afford to be custom-built for a compelling value proposition.
A securities exchange is an essential part of a modern, well-
functioning, appropriately regulated, financial market.
Substantial aspects of financial transactions remain effectively over-
the-counter (OTC) – this is set to change in a post-2008 world.
The role of an exchange has already started to change and will
continue to evolve.
Similarly, the instruments listed on exchanges have evolved from
vanilla share ownership, to financial products offering sophisticated
pay-off profiles.
The modern investor needs to familiarise himself as much with the
delivery mechanisms of investment performance,
than investments itself!
IN CLOSING
QUESTIONS?
Thank you!
For ETF and index investment insights and news, follow me on Twitter: @Nerina_Visser
CONTACT DETAILS
Nerina Visser, CFA
ETF Strategist & Advisor
Tel: +27 11 274 6173
Cell: +27 83 630 6599
Email: [email protected]
Twitter: @Nerina_Visser
Address: 79 Oxford Rd, Saxonwold, Johannesburg, South Africa
DISCLAIMER
© 2016 Nerina Visser of NV Consulting Services, the Author. This document has been approved by the Author.It should not be considered as an offer or solicitation of an offer to sell, buy or subscribe for any securities orany derivative instrument or any other rights pertaining thereto (“financial instruments”). Some of theinformation contained herein has been obtained from public sources (including but not limited to datavendors and the internet) and persons who the author believes to be reliable. This document is notguaranteed for accuracy, completeness or otherwise. It may not be considered as advice, arecommendation or an offer to enter into or conclude any transactions. Securities or financial instrumentsmentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companiestypically involve a higher degree of risk and more volatility than the securities of more established companies.The Author recommends that independent tax, accounting, legal and financial advice be sought should anyparty seek to place any reliance on the information contained herein or for purposes of determining thesuitability of the products for the investor as mentioned in this document. The Author and any persons involvedin the preparation or issuance of this document, may from time to time act as manager or co-manager of apublic offering or otherwise deal in, hold or act as market-makers or advisors or brokers in relation to thefinancial instruments which are the subject of this document or any related derivatives. Unless expresslystipulated as such, the Author makes no representation or warranty in this document, and does not acceptany liability whatsoever, howsoever arising, for any direct or consequential loss arising from any use of thisdocument or its contents. The information contained in this document may not be construed as legal,accounting, regulatory or tax advice and is given without any liability whatsoever. Past performance is noguarantee of future returns. Any modelling or back-testing data contained in this document should not beconstrued as a statement or projection as to future performance. This document is being made available tothe intended recipients as identified on the title page. All trademarks, service marks and logos used in thisreport are registered trademarks or service marks of the Author, unless noted otherwise.
