YEAR END THOUGHTS - Sterling Private Wealth · maths of compound interest and understanding the...

STERLING TIMES, YEAR END 2016 1

It has been a volatile year again, for markets and currencies. Our JSE ALSI is up only slightly for the year, and the Rand has strengthened against the US$ and GBP by 10% and 23% respectively.

These are big moves and were not widely predicted at the beginning of the year. They seldom are! This re-enforces that balance and caution should be exercised by not over-reacting to short term sentiment. The same applies to areas of the market in SA that were so beaten up into late 2015. Guess who the stars of 2016 are? These same sectors. Have we seen this all before? Many times! Are we surprised that the outcome playing out? No.

This is what makes investing so perplexing. No one could see a positive outcome for the Rand, or commodities, nine months back.

The following is the text from the Introduction to our March 2016 Newsletter. We continue beating the same drum. The Value Manager Performance has improved further!

We are delighted at the significant re-bound in performances of a number of value managers, both locally and internationally. This, again, emphasizes the importance of understanding the process and style of the underlying manager, having the fortitude and discipline to avoid panic, and to truly understand the benefit of a long-term horizon.

It then becomes appropriate to share the below quotes:

“If people knew how hard I had to work to gain my mastery,it would not seem so wonderful at all”

- Michelangelo Buonarroti

The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.”

- Bertrand Russell

“It’s déjà vu all over again.”- Yogi Berra (RIP, 9/23/2015)

Well, our 2016 Municipal Elections have come and gone and left many South Africans feeling very pleased that our young democracy is alive and thriving. How this plays out through to 2019 will be very interesting. As I write, the ANC NEC are in heated discussions to have the President stand down. Following the limited success of various removal attempts following repeated misdemeanours, we are less than hopeful.

YEAR END THOUGHTS

by Graydon Morris, Founding Director

December 2016


YEAR END THOUGHTSCONTINUED

We shared the below with certain of you during the year, penned by one of the World’s greatest investors. We could not have put it better ourselves:

Did we ever mention that investing is hard work – painstaking, relentless, and at times confounding? Separating relevant signal from noise can be especially difficult. Endless patience, great discipline, and steely resolve are required. Nothing you do will guarantee success, though you can tilt the odds significantly in your favour by having the right philosophy, mindset, process, team, clients, and culture. Getting those six things right is just about everything.

Complicating matters further, a successful investor must possess a number of seemingly contradictory qualities. These include the arrogance to act, and act decisively, and the humility to know that you could be wrong. The acuity, flexibility, and willingness to change your mind when you realise you are wrong, and the stubbornness to refuse to do so when you remain justifiably confident in your thesis. The conviction to concentrate your portfolio in your very best ideas, and the common sense to nevertheless diversify your holdings. A healthy scepticism, but not blind contrarianism. A deep respect for the lessons of history balanced by the knowledge that things regularly happen that have never occurred.

And, finally, the integrity to admit mistakes, the fortitude to risk making more of them, and the intellectual honesty not to confuse luck with skill.

We thank all our staff for their ongoing commitment to service excellence during 2016. We have been joined by Alida Naude (who incidentally got married recently…. congratulations Alida!), in Sandton, and Diane Dickson, in Cape Town, during the year. We wish them each a long and successful career with Sterling.

Perhaps as importantly, if not more, we again thank all our loyal clients for allowing us the privilege of serving you and your families as best we can. We never take this for granted and look forward to many more years of successful investing, together. It is not an easy task, but we do it with intellectual honesty, integrity and with your very best interests at the forefront of our minds always. Sterling could not have wished for a better client base when we began our journey in 2002.

We have made a meaningful contribution at year end to both the NSRI and the Endangered Wildlife Trust on behalf of all our clients. We hope that you are supportive of these initiatives.

Thank you to you all.


THE ROLE YOUR WEALTH MANAGER PLAYS

Whilst technical information about financial and investment planning is increasingly available for free on the internet (robo-advisor tools anyone?), global barometers show that the demand for financial advice keeps increasing. This would seem to indicate that financial planning involves a lot more than the simple maths of compound interest and understanding the relationship between investment risk and return.

Yet many financial advisors continue to put forward a value proposition to clients based on delivering superior investment returns through some proprietary investment management process. Such a one-dimensional advice proposition is almost impossible to sustain through a full market cycle. Surely a financial advisor’s role extends beyond the delivery of superior investment returns?

A financial advisor’s important role as behavioural coach was brought home to me recently during a conversation with an advisor on how their practice’s internship programme has been developing. Their practice only appoints university graduates but from various university faculties. During the conversation the financial advisor made the rather interesting comment that, when it came to converting interns to client-facing advisors, they had a higher success rate with interns who had a Psychology major than with interns who had a B.Com (Financial Planning) degree. The advisor then said that they “found it easier to teach a Psychology

Major the principles of financial planning than to teach a B.Com (Financial Planning) student to manage a client’s behaviour”.

A WELL-RESEARCHED AREA

This theme of managing client behaviour has subsequently cropped up in a number of our conversations with advisors. Anyone interested in quantifying the value of financial advice will be happy to hear that a fair amount of global research has been commissioned over the past 15 years into exactly this area. Most of the research attempts to answer the following broad question: “Are there major differences in the financial position of investors who consulted advisors early on in their lives, and investors who did not. What drives these differences?”

There are four main pieces of research often cited in this space (three from the USA and one from Canada). The objective of this article is not to do an in-depth review of the results – readers are invited to study these reports directly. Skimming through the conclusions of these four reports, however, a very interesting pattern emerges:

The Investment Funds Institute of Canada Value of Advice report (2012) concludes that households who consult with advisors continuously for 7-14 years end up with almost double the household assets

In today’s era of professional financial advice, with regulators expecting clients to pay financial advisors for the advice they receive, the debate about what financial advisors really do for clients seems to surface more and more.

Jaco van Tonder, Investec Asset Management


than households without an advisor. The difference is ascribed almost entirely to the fact that advised households have a much higher savings discipline.

The US National Bureau of Economic Research into the Market for Financial Advice (2012) highlighted the dangers of advisors who merely chase portfolio returns, or who are encouraged to ‘trade portfolios’ aggressively. It is claimed that such advisors reinforce the negative behavioural biases of their clients, destroying value.

• Alpha, Beta, and Now…. Gamma by Morningstar (2013) investigated how improved income drawdown strategies could benefit pensioners It estimated an increased portfolio return of around 1.8% p.a. through improving the financial decision-making of retirees.

• In Putting a value on your value: Quantifying Vanguard Advisors’ Alpha (2014), Vanguard analysed the impact of various financial advisor activities on client portfolio performances. It estimated a potential positive portfolio performance impact in the order of 3% p.a. after fees from the following sources: Appropriate portfolio construction (0.75% p.a.)

Ongoing rebalancing of portfolio and managing income drawdowns (0.75% p.a.) Behavioural coaching (1.5% p.a.)

Looking at the headline conclusions from these four research reports, one cannot but notice how every report highlights the importance of a financial advisor managing a client’s financial behaviour, decisions and discipline.

FINANCIAL ADVISORS AS FINANCIAL COUNSELLORS/THERAPISTS?

Exploring some of these learnings in follow-up advisor conversations, it became clear to me that many financial advisors underestimate their role as financial therapist, and lack a plain-language way of explaining this role to a client. Yet when asked to explain how a relationship with a new client develops, most advisors intuitively point out the following steps:

Develop a rapport with a client. Listen to their financial problems, needs and wants, and start educating the client on the trade-offs inherent in what they want, what they really need, and what is possible within the framework of the risk/return pay-off available in the market.

Prepare a financial plan for a client taking all the above points into consideration. Present the financial plan to the client, and convince the client to take appropriate action. After implementation, review the plan at least annually, and make adjustments as necessary.

Now admittedly, this is a very broad-strokes summary of a typical client/advisor relationship. But notice how three of the four steps are predominantly about counselling a client on their finances, and getting clients to commit to changing their financial behaviour. Only step two is about the nuts and bolts of portfolio construction and financial/estate planning.

EMBRACING THE ROLE OF THE ADVISOR AS BEHAVIOURAL COACH

It is becoming increasingly clear that a significant part of an advisor’s value-add is realised through encouraging clients to improve their financial behaviour. More and more scientific research in this area seems to be confirming this fact. This is also the one area where robo-advisor functionality continues to struggle to impress clients. As we have highlighted in previous articles on the developments of robo-advice, the combination of a robo-advisor and a human advisor is emerging as a real growth trend. No doubt the human advisor’s superior behavioural coaching is playing a big role here.


WHAT MAKES INVESTORS

HAPPY?Lesley Hohne, Director, Sterling Private Wealth

Unfortunately, correctly assessing investment performance is difficult, whether you’re using advanced statistics or your intuition.

ABSOLUTE AND RELATIVE PERSPECTIVES

It’s not just a matter of objective performance; it’s also how it feels. How we perceive our portfolio’s performance can be strongly influenced by what we compare it to. Let’s consider two extreme cases: Kim, who only cares about absolute returns, i.e. she has no idea what markets did and Ryan, who only cares about returns relative to the market. Kim and Ryan may perceive returns differently in different market environments. For example, a positive portfolio return which underperforms the market will be perceived as good by Kim, but bad by Ryan, while a negative portfolio return which outperforms the market will be perceived as bad by Kim, but good by Ryan. Of course there will be cases when both Kim and Ryan’s perceptions will be the same, e.g. if a positive portfolio return outperforms the market, both Kim and Ryan’s perceptions will be good, while a negative portfolio return which underperforms the market will be perceived by both Kim and Ryan as bad.

Kim and Ryan agree that beating the market in good times is good and that underperforming in a falling market is bad. However they disagree on underperformance in rising markets and outperformance in falling markets.So which perspective do you have? Chances are you have BOTH! Many of us will oscillate between these

two focuses – caring about absolute numbers in negative markets, i.e. not losing any money and relative performance (keeping up with/beating the Joneses) in positive markets. As a result we are only happy when we outperform positive markets and condemn ourselves to dissatisfaction at all other times.

In a study conducted by Barclays for two years, beginning September 2008, a sample of clients was tracked, asking them if they were market or absolute return focused and how they would rate their returns every quarter. What they found was revealing. First, people do vary in how much they say they use an absolute versus relative benchmark. Some people care a lot about beating the market and this significantly influences what returns they define as “good”. However, while other people say they don’t care about how the market or others have done, we can actually detect the influence of relative underperformance in how they rate their returns. Believing you beat other investors influences your perception of returns.

It often cited that one of the core insights of behavioural finance is that the journey matters as much, if not more, than the destination. For most investors, dealing with the journey to reach the destination is often the hardest part. Throughout that journey, most try to make sense of whether they are in the “right” investment portfolio.

So which perspective do you have? Chances are

you have BOTH!


What really matters is the absolute growth

in our wealth over the long term. .

Investors always rate returns more highly if they believe they have done better than other investors, no matter what benchmark they use. As we’d expect, investors tend to rate higher returns better than lower ones. However, the benefits from a positive return are almost completely eroded if we believe other people have done better than us. Conversely, when markets have fallen, beating other investors helps us somewhat, but does not prevent us from feeling the pain of a loss – we know our return was bad, just not as bad as others.

WHAT REALLY MATTERS

How we perceive our returns influences our investment decisions. We are naturally prone to assess investment returns such that we are dissatisfied with them and our assessment of the past influences our future risk taking decisions – what can we do to ensure we are acting intelligently for the future?

What really matters is the absolute growth in our wealth over the long term.

Examining performance relative to benchmarks may be useful to assess whether short-term performance is due to skill or just luck (either our own or just that of managers), but does not tell us much about whether we’re in the “right” portfolio. Even the “right” portfolio will have periods of short-term loss - risk is inherent in investing.

However, since relative performance is likely to affect us, when assessing our portfolio’s performance we should ensure we use a blended benchmark that matches the level of risk appropriate for our risk tolerance. We should know our levels of risk tolerance and composure to understand the correct level of long-term risk and how we’re likely to react to the under or over performance of our portfolio in the short term.

Ideally we should always discuss asset allocation changes with an independent adviser who is less likely to suffer from exuberance and despondency with us and therefore in a position to help focus our efforts on long term future growth.

Finally, we should remember that there is little value in monitoring our portfolios from month-to-month, but a lot of danger in how excessive monitoring can make us behave.


BUFFETISMS• Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate.• We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.• In the business world, the rear-view mirror is always clearer than the windshield.• Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.• You know, people talk about this being an uncertain time. You know, all time is uncertain. I mean, it was uncertain back in - in 2007, we just didn’t know it was uncertain. It was - uncertain on September 10th, 2001. It was uncertain on October 18th, 1987, you just didn’t know it.• Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.

• December 2nd - MSNBC “Damaged investors could slow a recovery….getting U.S. stocks moving higher again – let alone back to their 2007 levels – is going to be a long haul.”

• February 2nd – Market Watch “When the next bull market is coming….I have pushed my expectations for the next bull market out to next year. Based on simple chart reading it was not a difficult conclusion to reach.(we particularly liked the “not a difficult conclusion”)

• March 8th - USA Today “Stock market recovery likely will be years in the making.” What happened the following year? From March 1, 2009 to February 28, 2010 the S&P was up 53.6%.

FINANCIAL HEADLINES AND FORECASTS

We took a look at the headlines during the depths of the Great Recession of 2008/2009. By the end of February 2009 the S&P’s annual return was -45.2%. Here’s what we found:


NAME ONEEveryone wants to be in the market when it goes up and out when it goes down. That’s called “market timing.” Why don’t we follow that simple idea? Let’s share with you why!

“Name the ten most successful market timers of all time. How about the top five? The top one? We agree that if an advisor could consistently predict what markets will be up and which down, they would have to be pretty foolish to diversify. Why on earth would we invest in stock if we knew the market was headed down? Had we posed the challenge back in the ’80s, many would have pointed to Joe Granville.

What, you haven’t heard of Joe Granville? Until the late ’80s, he was the market guru. Like many gurus, hehad absolute confidence in his crystal ball. According to Robert Shiller in the book Irrational Exuberance,Granville was quoted by Time magazine as saying, “I don’t think that I will ever make a serious mistake in the stock market for the rest of my life,” and he predicted that he would win the Nobel economics prize [suchmodesty].

In 1981, when he was grossing $6 million a year for his Newsletter advice, his two-word “sell everything” warning to his subscribers triggered a massive market sell-off with a record number of sharestrading. Just before the 1987 crash, he again warned of a market disaster. He was obviously correct on thatcall and his picture was on the cover of major magazines and papers around the world.

Maybe you haven’t heard of him because, like those of all other market timers, his crystal ball had flaws. A fewyears ago, the Hulbert Financial Digest reported that the Granville Market Letter “is at the bottom of therankings for performance over the past 25 years—having produced average losses of more than 20% per year on an annualized basis.”

Until someone can name at least a few successful long-time market timers, we remain a skeptic and will continue to “bet” on some form of diversification.


Han van Meegeren was a talented artist himself but never found favour with the art critics. In an attempt to prove his talent, he set out to forge works by some of the world’s most famous artists and made a fortune selling paintings verified by critics to be originals. So good were his paintings that at the end of World War 2 he was arrested to be tried for treason as a result of selling Dutch artwork to the Nazis, a charge which carried the death penalty. It was only after a number of weeks in jail that in an attempt to avoid the hangman’s noose he confessed that the piece he sold to Goering was indeed a fake.

In order to prove his “innocence” he refused to paint a copy from memory but instead painted a new “masterpiece” over a six month period, which was witnessed by court appointed experts. The treason charges were dropped and he ended up receiving a one year sentence for fraud, a sentence that he never served after he succumbed to a heart condition.

It is said that when Goering was told by his captors that the jewel of his collection was a fake, that he was inconsolable. Of all the atrocities he had committed or ordered, it’s incredible to think that this revelation is what triggered his emotions.

What this story shows is that the world is littered with talented forgers, charlatans and frauds capable of fooling even the most astute. The financial world is no different, with many questionable sorts looking to defraud honest, hardworking people. While it may seem a burden at times, compliance is something that we take extremely seriously at Sterling Private Wealth.

The use of technology by criminals has made this function all that more challenging but an extremely dedicated and technologically proficient team ensures that we remain a step ahead of the van Meegerens of our world.

...the world is littered with talented forgers, charlatans

and frauds capable of fooling even the most astute. .

THE DUTCH FORGER

COMPLIANCE MATTERSEwan Naude

During World War 2, as part of their widespread looting and stealing, many high ranking Nazis built large collections of priceless artworks. As an avid collector (read pilferer) of art, Hermann Goering, a leading member of the Nazi party, set his sights on an original painted by Johannes Vermeer, a famous Dutch painter. A piece entitled, “Christ with the adulteress” was purchased through the Nazi art dealer and banker, Alois Meidl, in 1942 for a sum equivalent to US$7m in today’s terms. Little did Goering know that one of his most prized pieces was a fake, which had been forged by Dutch artist Han van Meegeren.


“DO AS I SAY, NOT AS I DO”

As investors we are told to invest for the long term. But do the managers to which we entrust our savings do the same? History tells us ‘no’.

Of the 27 unit trust fund managers operating in SA in 1998, less than 20 years ago, only 11 of those are remotely recognisable today. Others have come and gone, with the point being that investment managers – those offering long term savings services - have a lower than 50% chance of sticking to the promise they sold almost 20 years ago.

Our fund research points to this as a material negative for prospective investment returns.Since 1998, these 27 managers have been joined by a further 143 fund management businesses, managing almost R1.8tn in unit trust investments alone. This is a staggering escalation, and even excludes the swarm of fund of funds solutions (283 of them) which characterise our market today.

Given fund managers tendency to change, merge, divest, restructure and simply collapse, is the trust we place in our fund managers misjudged? Is the single thing they survive on (trust) not evident in their own businesses?

The table below provides some context. Interesting points to note: Compared with 1998, local investors now have:3 times the number of equity funds to choose from6 times as many income funds16 times as many balanced funds55 times the number of property funds (Ok there was just the single fund – Marriott’s – in 1998. Who would have thought a property boom was coming in 1998?)

Taken from FUNDHOUSE / COUNTERPOINT ASSET MANAGEMENTNovember 2016, Investment Review

With the result we now have over 1200 investment options in our local market. Unbelievably, we have a seven-fold increase in funds, a six-fold increase in fund managers, and a measly 10% increase in the number of investors. Same pie, more slices. Of the 170 fund managers in operation today, how many can we expect to survive, in their current shape or form, over the next 10/20/30 years? And are your savings invested in the majority who, based on past evidence, are destined to be shuffled, rejigged and juggled to suit various business objectives, taking you and your savings along for the ride?


Think back if you can - who remembers these names? African Harvest (acquired by Cadiz, which has been partially acquired by Stellar who has also decided to buy into Prescient); Brait (now a private equity business owned by a retailer, Christo Wiese); Fedsure and Norwich (recall the collapse, 2002); Syfrets (lost in the midst of Nedgroup. Nedgroup is a perennial culprit, having swallowed/amalgamated no less than 6 separate fund managers in the 2000’s); Metropolitan (first became the original set of Investec funds, later bought by Momentum). The list goes on: Prodigy, Appleton, Infinity amongst a long list of 1990’s “boutiques” no longer with us. And the one that was there at the beginning of it all in 1965, the South African Growth Equity Fund (SAGE) – now going by the name of the Momentum Equity Fund, which has recently split into a business called Aluwani.day.

The proliferation of ‘boutique’ managers appears to be a cyclical trend which repeats every 10 years or so. Out of each cycle one or two quality managers survive. Examples of these include Allan Gray (tough times in 1998) and Coronation (wholesale changes in 2004, and started with a Syfrets walkout in 1993). Of the current crop of boutiques, who will be around managing your money 10 years from now?

Is it normal for an industry to have this level of corporate change? The answer in part lies in the numbers in the table above. Growth in equity funds is low at 3x (equity investors are a fickle bunch, which makes for an unreliable revenue stream, bad for business); growth in balanced funds exceptionally high at 16x (great for business, investors leave their money in!). This makesbusinesses vulnerable to performance downturns.

Property fund growth (55x) highlights the industries tendency to construct and sell current trending funds. Historical examples of this include the tech boom in the late 90’s (think Coronation New Era Growth, Sanlam Future Trends or Sage SciTech). All too often, this move to thematic performers ends badly and the funds ‘disappear’.

Given the low barriers to entry as well as immense economies of scale, asset management is an attractive industry, but can be lost quickly. What is the secret of those managers who stack the odds in your favour, with long term oriented businesses which enables them to efficiently go about the task of managing your money?

The traits we seek out in the business and shareholder aspect of our manager assessments include:

- A culture of client centricity

- Investment leadership driving the business, not corporate leadership

- Strong succession management

- A diversified client base with strong servicing and brand

- Strong investment process and the ability to attract and retain high calibre individuals

- Conservative by nature in the decisions they make

- Avoidance of fads and product proliferation

Finding managers who exhibit these traits will mitigate the inevitable corporate change and the potential for negative impact on your savings. These are the select few managers deserving of client trust. It’s a surprisingly short list.


Sect

ion

1: M

arke

t Per

form

ance

Sect

or1m

3m6m

YTD

1yr

3yr p

a5y

r pa

10yr

pa

3yr

Vol1

5yr

Vol1

10yr

Vo

l1

LOCA

L M

ARKE

T IN

DICE

S (In

Ran

ds)

FTSE

/JSE

All

Shar

e In

dex

(ALS

I)ZA

R-0

.6%

-3.9

%-5

.5%

1.6%

-0.1

%6.

9%12

.2%

10.8

%9.

9%10

.6%

15.1

%FT

SE/J

SE S

A Li

sted

Pro

pert

yZA

R-3

.3%

-1.8

%-2

.4%

5.7%

-0.8

%13

.5%

16.8

%15

.6%

13.0

%14

.4%

15.6

%SA

All

Bond

Inde

x (A

LBI)

ZAR

-1.8

%1.

7%6.

3%13

.7%

6.1%

6.7%

7.2%

8.0%

8.6%

7.9%

7.5%

SA C

ash

Inde

x (S

teFI

)ZA

R0.

6%1.

9%3.

8%6.

7%7.

3%6.

5%6.

1%7.

3%0.

2%0.

2%0.

6%Ba

lanc

ed B

ench

mar

kZA

R0.

0%-3

.2%

-3.9

%2.

7%1.

9%8.

8%12

.8%

11.1

%6.

3%6.

3%6.

3%SA

Infla

tion

(1 m

onth

lag)

ZAR

0.5%

0.6%

2.1%

6.0%

6.4%

5.6%

5.6%

6.2%

1.5%

1.4%

1.4%

GLO

BAL

MAR

KET

INDI

CES

(in U

SD)

Glo

bal E

quity

(MSC

I Wor

ld)

USD

1.4%

0.0%

3.1%

5.0%

3.2%

3.7%

9.9%

3.8%

11.1

%11

.2%

16.5

%Em

ergi

ng M

arke

ts E

quity

(MSC

I EM

)U

SD-4

.6%

-3.1

%8.

4%10

.9%

8.5%

-3.1

%1.

0%2.

3%16

.3%

16.2

%23

.5%

Glo

bal B

onds

(Bar

clay

s Glo

bal B

ond

Inde

x)U

SD-4

.0%

-6.1

%-3

.1%

2.6%

3.1%

-0.2

%0.

4%3.

2%5.

0%4.

6%5.

9%G

loba

l Cas

h U

SD0.

1%0.

2%0.

3%0.

5%0.

5%0.

3%0.

3%1.

1%0.

1%0.

0%0.

5%S&

P 50

0U

SD3.

6%1.

7%5.

7%9.

1%7.

3%8.

4%13

.7%

6.2%

10.8

%10

.4%

15.3

%Do

w Jo

nes

Indu

stria

lU

SD5.

9%4.

6%9.

0%12

.6%

10.9

%8.

6%12

.5%

7.4%

11.3

%10

.5%

14.3

%N

asda

q Co

mpo

site

USD

2.8%

2.4%

8.3%

7.6%

5.5%

10.8

%16

.7%

9.3%

13.3

%12

.9%

17.8

%FT

SE 1

00 In

dex

USD

0.3%

-3.9

%-4

.7%

-4.2

%-7

.8%

-4.5

%3.

3%0.

3%13

.7%

13.9

%18

.5%

DAX

30U

SD-3

.5%

-4.3

%-1

.2%

-3.3

%-6

.1%

-4.1

%6.

6%3.

0%16

.6%

17.9

%24

.5%

CAC

40U

SD-1

.7%

-1.4

%-2

.1%

-0.1

%-3

.6%

-2.8

%6.

5%0.

0%14

.8%

16.4

%23

.1%

Nik

kei 2

25U

SD-2

.2%

-0.7

%4.

3%2.

7%1.

2%2.

0%8.

3%1.

4%12

.4%

12.7

%16

.4%

SSE

Com

posit

e In

dex

(Sha

ngha

i)U

SD3.

1%2.

1%6.

5%-1

3.4%

-12.

4%9.

0%5.

2%5.

8%29

.8%

26.4

%31

.8%

Han

g Se

ng In

dex

USD

-0.5

%-0

.1%

12.5

%7.

9%7.

6%2.

2%8.

9%5.

4%18

.2%

17.5

%22

.9%

Fund

hous

e Ad

vise

r Mar

ket R

epor

t: 30

Nov

embe

r 201

6

2

Disc

laim

er: U

sers

shou

ld b

e aw

are

that

shor

t ter

m p

erfo

rman

ce ca

n be

vol

atile

and

that

pas

t per

form

ance

is n

ot n

eces

saril

y a

good

gui

de to

futu

re p

erfo

rman

ce. T

he in

form

atio

n in

this

repo

rt is

for g

ener

al g

uida

nce

and

does

not

cons

titut

e an

offe

r mad

e by

Fun

dhou

se.

This

repo

rtis

fort

heus

eof

Fund

hous

ean

dits

clie

nts

only

and

may

notb

epu

blish

edex

tern

ally

with

outp

erm

issio

nfir

stbe

ing

obta

ined

from

Fund

hous

e.W

hile

grea

tcar

ean

ddi

ligen

ceha

sbe

enta

ken

inth

eco

mpi

latio

nof

the

repo

rtw

ithDa

tapr

ovid

edby

Prof

ileDa

ta

and

FE,n

ore

pres

enta

tion

orw

arra

nty,

expr

esso

rim

plie

d,is

orw

illbe

give

nby

Fund

hous

eor

itsdi

rect

ors,

part

ners

,em

ploy

eeso

radv

isers

oran

yot

herp

erso

nto

the

accu

racy

orth

eco

mpl

eten

esso

fthe

info

rmat

ion

inth

ere

port

orre

latin

gth

eret

o.Fu

ndho

use

will

not

acce

ptan

ylia

bilit

yfo

rlos

sess

uffe

red

asa

resu

ltof

inac

cura

cies

. D

ata

supp

lied

by P

rofil

e Da

ta A

naly

tics

|

ww

w.fu

ndho

use.

co.za

Page

1

ADVISER MARKET REPORT


Fund

hous

e Ad

vise

r Mar

ket R

epor

t: 30

Nov

embe

r 201

6M

AJO

R IN

DICE

S BA

SED

TO

RAN

DS

Sect

or1m

3m6m

YTD

1yr

3yr p

a5y

r pa

10yr

pa

3yr

Vol1

5yr

Vol1

10yr

Vo

l1

FTSE

/JSE

All

Shar

e In

dex

(ALS

I)ZA

R-0

.6%

-3.9

%-5

.5%

1.6%

-0.1

%6.

9%12

.2%

10.8

%9.

9%10

.6%

15.1

%G

loba

l Equ

ity (M

SCI W

orld

)ZA

R5.

5%-4

.7%

-8.0

%-5

.0%

0.3%

15.4

%22

.6%

11.0

%13

.9%

13.4

%13

.8%

Emer

ging

Mar

kets

Equ

ity (M

SCI E

M)

ZAR

-0.8

%-7

.7%

-3.3

%0.

4%5.

5%7.

9%12

.7%

9.4%

12.1

%12

.2%

15.7

%SA

All

Bond

Inde

x (A

LBI)

ZAR

-1.8

%1.

7%6.

3%13

.7%

6.1%

6.7%

7.2%

8.0%

8.6%

7.9%

7.5%

Glo

bal B

onds

(Bar

clay

s Glo

bal B

ond

Inde

x)ZA

R-0

.1%

-10.

5%-1

3.6%

-7.2

%0.

3%11

.1%

12.1

%10

.4%

12.9

%12

.6%

14.6

%CO

MM

ODI

TIES

Gol

d (U

S Do

llars

)U

SD-6

.9%

-9.2

%-1

.4%

12.7

%12

.4%

-1.6

%-7

.1%

6.4%

15.9

%18

.0%

19.3

%G

old

(Ran

ds)

ZAR

-3.1

%-1

3.4%

-12.

1%2.

0%9.

3%9.

5%3.

6%13

.7%

16.7

%19

.1%

21.8

%SA

Equ

ity S

ecto

rsFT

SE/J

SE A

ll Sh

are

Inde

x (A

LSI)

ZAR

-0.6

%-3

.9%

-5.5

%1.

6%-0

.1%

6.9%

12.2

%10

.8%

9.9%

10.6

%15

.1%

FTSE

/JSE

Top

40

ZAR

-0.5

%-4

.7%

-7.6

%-2

.1%

-3.2

%5.

9%11

.5%

10.3

%10

.6%

11.7

%16

.2%

FTSE

/JSE

Mid

Cap

ZAR

-2.2

%-2

.0%

4.1%

22.0

%16

.9%

10.9

%14

.9%

13.9

%13

.7%

11.6

%14

.1%

FTSE

/JSE

Sm

all C

apZA

R0.

5%0.

2%4.

6%19

.0%

8.4%

11.5

%18

.4%

13.5

%11

.7%

10.2

%13

.4%

FTSE

/JSE

RES

I 20

ZAR

6.9%

7.8%

7.4%

33.9

%31

.4%

-9.7

%-6

.2%

0.1%

25.2

%23

.9%

25.3

%FT

SE/J

SE S

A Fi

nanc

ials

ZAR

0.3%

0.8%

-1.8

%1.

9%-4

.6%

11.4

%17

.7%

11.1

%14

.3%

12.5

%16

.7%

FTSE

/JSE

SA

Indu

stria

lsZA

R-3

.7%

-9.7

%-1

1.6%

-8.2

%-8

.5%

8.6%

18.2

%16

.3%

11.1

%11

.1%

14.3

%FT

SE/J

SE S

A Re

sour

ces

ZAR

6.1%

7.1%

8.0%

39.3

%33

.9%

-8.7

%-5

.9%

0.3%

25.4

%24

.0%

25.3

%FT

SE/J

SE S

A Li

sted

Pro

pert

yZA

R-3

.3%

-1.8

%-2

.4%

5.7%

-0.8

%13

.5%

16.8

%15

.6%

13.0

%14

.4%

15.6

%

Sect

or1m

3m6m

YTD

1yr

3yr p

a5y

r pa

10yr

pa

3yr

Vol1

5yr

Vol1

10yr

Vo

l1

Curr

enci

es (p

ositi

ve re

turn

= R

and

wea

keni

ng)

Rand

/ Do

llar

ZAR

3.4%

-4.3

%-1

0.6%

-9.3

%-3

.0%

11.3

%11

.6%

7.0%

14.2

%14

.3%

16.5

%Ra

nd /

GBP

Pou

ndZA

R5.

7%-9

.0%

-23.

1%-2

3.2%

-19.

5%1.

7%6.

6%2.

2%15

.7%

14.1

%15

.2%

Rand

/ Eu

roZA

R-0

.1%

-9.1

%-1

5.0%

-11.

5%-2

.8%

2.4%

6.4%

4.6%

13.1

%12

.9%

13.7

%

1 Vol

atili

ty is

a s

tatis

tical

mea

sure

that

pro

vide

s an

indi

catio

n of

the

disp

ersio

n of

retu

rns

over

tim

e2

Calc

ulat

ed a

s 53

% S

A Eq

uity

, 14.

5% S

A Bo

nds,

7.5

% S

A Ca

sh 5

% S

A Pr

oper

ty,

12%

Glo

bal E

quity

, 8%

Glo

bal B

onds

aft

er 1

July

201

1, a

nd 5

6.5%

SA

Equi

ty, 1

5.5%

SA

Bond

s, 8

% S

A Ca

sh 5

% S

A Pr

oper

ty,

9% G

loba

l Equ

ity, 6

%

Glo

bal B

onds

prio

r to

1 Ju

ly 2

011.

Disc

laim

er: U

sers

shou

ld b

e aw

are

that

shor

t ter

m p

erfo

rman

ce ca

n be

vol

atile

and

that

pas

t per

form

ance

is n

ot n

eces

saril

y a

good

gui

de to

futu

re p

erfo

rman

ce. T

he in

form

atio

n in

this

repo

rt is

for g

ener

al g

uida

nce

and

does

not

cons

titut

e an

offe

r mad

e by

Fun

dhou

se.

This

repo

rtis

fort

heus

eof

Fund

hous

ean

dits

clie

nts

only

and

may

notb

epu

blish

edex

tern

ally

with

outp

erm

issio

nfir

stbe

ing

obta

ined

from

Fund

hous

e.W

hile

grea

tcar

ean

ddi

ligen

ceha

sbe

enta

ken

inth

eco

mpi

latio

nof

the

repo

rtw

ithDa

tapr

ovid

edby

Prof

ileDa

ta

and

FE,n

ore

pres

enta

tion

orw

arra

nty,

expr

esso

rim

plie

d,is

orw

illbe

give

nby

Fund

hous

eor

itsdi

rect

ors,

part

ners

,em

ploy

eeso

radv

isers

oran

yot

herp

erso

nto

the

accu

racy

orth

eco

mpl

eten

esso

fthe

info

rmat

ion

inth

ere

port

orre

latin

gth

eret

o.Fu

ndho

use

will

not

acce

ptan

ylia

bilit

yfo

rlos

sess

uffe

red

asa

resu

ltof

inac

cura

cies

. D

ata

supp

lied

by P

rofil

e Da

ta A

naly

tics

|

ww

w.fu

ndho

use.

co.za

Page

2


Fund

hous

e Ad

vise

r Mar

ket R

epor

t: 30

Nov

embe

r 201

6

Infla

tion

Benc

hmar

ksSe

ctor

1m3m

6mYT

D1y

r3y

r pa

5yr p

a10

yr p

a3y

r Vo

l1

5yr

Vol1

10yr

Vo

l1

SA In

flatio

n +

3%p.

aZA

R0.

7%1.

3%3.

6%8.

7%9.

4%8.

6%8.

6%9.

2%-

--

SA In

flatio

n +

5%p.

aZA

R0.

9%1.

8%4.

6%10

.6%

11.4

%10

.6%

10.6

%11

.2%

--

-SA

Infla

tion

+ 7%

p.a

ZAR

1.1%

2.3%

5.6%

12.4

%13

.4%

12.6

%12

.6%

13.2

%-

--

Sect

ion

2: I

ndus

try

Perf

orm

ance

SA U

nit T

rust

Sec

tors

SA E

quity

- G

ener

alZA

R-0

.5%

-4.1

%-5

.1%

1.9%

-0.3

%5.

5%10

.7%

9.3%

9.0%

9.0%

12.5

%SA

Equ

ity -

Fina

ncia

lZA

R1.

4%0.

9%-3

.3%

0.5%

-6.7

%8.

5%15

.9%

11.2

%14

.2%

12.7

%16

.4%

SA E

quity

- In

dust

rial

ZAR

-3.5

%-1

0.3%

-11.

4%-6

.9%

-7.5

%8.

6%16

.9%

14.4

%10

.5%

9.9%

13.1

%SA

Equ

ity -

Reso

urce

sZA

R4.

0%4.

6%6.

8%43

.4%

47.5

%2.

0%0.

6%4.

3%22

.4%

21.5

%21

.7%

SA E

quity

- La

rge

Cap

ZAR

-1.1

%-5

.6%

-7.8

%-1

.3%

-3.8

%4.

4%10

.3%

9.7%

10.7

%11

.3%

15.0

%SA

Equ

ity -

Mid

& S

mal

l Cap

ZAR

0.1%

1.0%

4.0%

8.2%

6.1%

6.8%

13.3

%9.

7%8.

6%8.

1%13

.0%

SA In

tere

st B

earin

g - M

oney

Mar

ket

ZAR

0.6%

1.8%

3.7%

6.4%

7.0%

5.8%

5.6%

7.0%

0.3%

0.3%

0.6%

SA In

tere

st B

earin

g - S

hort

Ter

mZA

R0.

6%1.

9%4.

1%7.

4%7.

9%6.

5%6.

2%7.

1%0.

5%0.

5%0.

8%SA

Inte

rest

Bea

ring

- Var

iabl

e Te

rmZA

R-1

.3%

1.6%

5.6%

9.8%

7.5%

6.8%

7.2%

7.7%

5.8%

5.9%

5.9%

SA M

ulti

Asse

t - F

lexi

ble

ZAR

-0.1

%-2

.9%

-3.8

%0.

5%-0

.1%

6.2%

10.5

%9.

2%6.

0%6.

1%7.

6%SA

Mul

ti As

set -

Hig

h Eq

uity

ZAR

0.1%

-3.2

%-4

.3%

0.5%

0.3%

6.5%

10.2

%8.

8%5.

7%5.

9%7.

2%SA

Mul

ti As

set -

Inco

me

ZAR

0.3%

1.6%

3.5%

7.4%

7.5%

6.8%

6.9%

7.6%

1.3%

1.3%

1.4%

SA M

ulti

Asse

t - L

ow e

quity

ZAR

0.3%

-1.3

%-1

.2%

3.1%

3.1%

6.8%

8.8%

8.3%

3.2%

3.3%

3.7%

SA M

ulti

Asse

t - M

ediu

m E

quity

ZAR

0.1%

-2.8

%-3

.5%

1.0%

0.8%

6.3%

9.6%

8.3%

4.7%

4.9%

6.2%

SA R

eal E

stat

e - G

ener

alZA

R-2

.5%

-2.0

%-3

.6%

2.6%

-1.7

%12

.5%

15.7

%14

.0%

10.9

%12

.5%

13.6

%SA

Wor

ldw

ide

Mul

ti As

set F

lexi

ble

ZAR

1.7%

-4.5

%-7

.0%

-3.7

%-0

.4%

10.1

%14

.6%

9.5%

8.9%

9.0%

8.8%

Glo

bal E

quity

- G

ener

alZA

R4.

2%-5

.3%

-9.4

%-7

.3%

-1.8

%12

.3%

19.6

%8.

4%14

.1%

14.1

%13

.9%

Glo

bal I

nter

est B

earin

g - S

hort

Ter

mZA

R2.

9%-6

.1%

-11.

6%-1

1.2%

-4.3

%9.

4%9.

5%6.

4%13

.5%

13.3

%14

.5%

Glo

bal I

nter

est B

earin

g - V

aria

ble

Term

ZAR

-0.5

%-1

0.4%

-13.

0%-7

.5%

-0.9

%9.

6%10

.6%

9.1%

12.2

%12

.1%

13.4

%G

loba

l Mul

ti As

set -

Fle

xibl

eZA

R3.

2%-6

.2%

-10.

2%-7

.2%

-0.9

%10

.7%

16.2

%8.

4%12

.5%

12.6

%11

.9%

Glo

bal M

ulti

Asse

t - In

com

eZA

R3.

9%-4

.2%

-9.5

%-7

.5%

-0.9

%11

.4%

11.5

%8.

9%13

.0%

11.3

%10

.2%

Glo

bal M

ulti

Asse

t - L

ow e

quity

ZAR

3.0%

-6.7

%-1

0.8%

-6.7

%-0

.3%

12.6

%13

.7%

7.8%

12.8

%12

.9%

13.0

%G

loba

l Rea

l Est

ate

- Gen

eral

ZAR

1.8%

-13.

4%-1

7.3%

-13.

7%-6

.6%

14.0

%18

.4%

6.5%

14.7

%13

.4%

17.8

%1 V

olat

ility

is a

sta

tistic

al m

easu

re th

at p

rovi

des a

n in

dica

tion

of th

e di

sper

sion

of re

turn

s ov

er ti

me

Disc

laim

er: U

sers

shou

ld b

e aw

are

that

shor

t ter

m p

erfo

rman

ce ca

n be

vol

atile

and

that

pas

t per

form

ance

is n

ot n

eces

saril

y a

good

gui

de to

futu

re p

erfo

rman

ce. T

he in

form

atio

n in

this

repo

rt is

for g

ener

al g

uida

nce

and

does

not

cons

titut

e an

offe

r mad

e by

Fun

dhou

se.

This

repo

rtis

fort

heus

eof

Fund

hous

ean

dits

clie

nts

only

and

may

notb

epu

blish

edex

tern

ally

with

outp

erm

issio

nfir

stbe

ing

obta

ined

from

Fund

hous

e.W

hile

grea

tcar

ean

ddi

ligen

ceha

sbe

enta

ken

inth

eco

mpi

latio

nof

the

repo

rtw

ithDa

tapr

ovid

edby

Prof

ileDa

ta

and

FE,n

ore

pres

enta

tion

orw

arra

nty,

expr

esso

rim

plie

d,is

orw

illbe

give

nby

Fund

hous

eor

itsdi

rect

ors,

part

ners

,em

ploy

eeso

radv

isers

oran

yot

herp

erso

nto

the

accu

racy

orth

eco

mpl

eten

esso

fthe

info

rmat

ion

inth

ere

port

orre

latin

gth

eret

o.Fu

ndho

use

will

not

acce

ptan

ylia

bilit

yfo

rlos

sess

uffe

red

asa

resu

ltof

inac

cura

cies

. D

ata

supp

lied

by P

rofil

e Da

ta A

naly

tics

|

ww

w.fu

ndho

use.

co.za

Page

3


Fund

hous

e Ad

vise

r Mar

ket R

epor

t: 30

Nov

embe

r 201

6Se

ctio

n 3:

Cha

rts

2 Cal

cula

ted

as 5

3% S

A Eq

uity

, 14.

5% S

A Bo

nds,

7.5

% S

A Ca

sh 5

% S

A Pr

oper

ty,

12%

Glo

bal E

quity

, 8%

Glo

bal B

onds

aft

er 1

July

201

1, a

nd 5

6.5%

SA

Equi

ty, 1

5.5%

SA

Bond

s, 8

% S

A Ca

sh 5

% S

A Pr

oper

ty,

9% G

loba

l Equ

ity, 6

%

Glo

bal B

onds

prio

r to

1 Ju

ly 2

011.

-0.3

%

5.5%

10.7

%9.

3%

-0.1

%

6.9%

12.2

%10

.8%

13.4

%12

.6%

12.6

%13

.2%

-10%0%10

%

20%

1yr

3yr p

a5y

r pa

10yr

pa

SA G

ener

al E

quity

Fun

ds

SA E

quity

- Ge

nera

lFT

SE/J

SE A

ll Sh

are

Inde

x (A

LSI)

SA In

flatio

n +

7%p.

a

0.3%

6.5%

10.2

%8.

8%

1.9%

8.8%

12.8

%11

.1%

11.4

%10

.6%

10.6

%11

.2%

0%10%

20%

1yr

3yr p

a5y

r pa

10yr

pa

SA B

alan

ced

Fund

s

SA M

ulti

Asse

t - H

igh

Equi

tyBa

lanc

ed B

ench

mar

kSA

Infla

tion

+ 5%

p.a

5.0

10.

0

15.

0

20.

0

25.

0

30.

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

PE Ratio

JSE

All S

hare

: PE

Rat

io o

ver 2

0 Ye

ars

AVE:

15.

03

-

2.0

4.0

6.0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Dividend Yield

JSE

All S

hare

: Di

vide

nd Y

ield

ove

r 20

Year

s

AVE:

2.

78

0%10%

20%

30%

40%

50%

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

Nov

-11

May

-12

Nov

-12

May

-13

Nov

-13

May

-14

Nov

-14

May

-15

Nov

-15

May

-16

Nov

-16

SA M

arke

t Ret

urns

: 3y

r Rol

ling

Retu

rns

vs In

flatio

n

SA B

onds

SA E

quiti

esSA

Cas

hSA

Infla

tion

2

Disc

laim

er: U

sers

shou

ld b

e aw

are

that

shor

t ter

m p

erfo

rman

ce ca

n be

vol

atile

and

that

pas

t per

form

ance

is n

ot n

eces

saril

y a

good

gui

de to

futu

re p

erfo

rman

ce. T

he in

form

atio

n in

this

repo

rt is

for g

ener

al g

uida

nce

and

does

not

cons

titut

e an

offe

r mad

e by

Fun

dhou

se.

This

repo

rtis

fort

heus

eof

Fund

hous

ean

dits

clie

nts

only

and

may

notb

epu

blish

edex

tern

ally

with

outp

erm

issio

nfir

stbe

ing

obta

ined

from

Fund

hous

e.W

hile

grea

tcar

ean

ddi

ligen

ceha

sbe

enta

ken

inth

eco

mpi

latio

nof

the

repo

rtw

ithDa

tapr

ovid

edby

Prof

ileDa

ta

and

FE,n

ore

pres

enta

tion

orw

arra

nty,

expr

esso

rim

plie

d,is

orw

illbe

give

nby

Fund

hous

eor

itsdi

rect

ors,

part

ners

,em

ploy

eeso

radv

isers

oran

yot

herp

erso

nto

the

accu

racy

orth

eco

mpl

eten

esso

fthe

info

rmat

ion

inth

ere

port

orre

latin

gth

eret

o.Fu

ndho

use

will

not

acce

ptan

ylia

bilit

yfo

rlos

sess

uffe

red

asa

resu

ltof

inac

cura

cies

. D

ata

supp

lied

by P

rofil

e Da

ta A

naly

tics

|

ww

w.fu

ndho

use.

co.za

Page

4

YEAR END THOUGHTS - Sterling Private Wealth · maths of compound interest and understanding the...

Documents

Transcript of YEAR END THOUGHTS - Sterling Private Wealth · maths of compound interest and understanding the...