mm offshore march2016 - moneymarketingt: +27 21 670 6570 | e: [email protected] johannesburg:...

VOLUME 10OFFSHORE INVESTING SPECIAL | March 2016

Slowdown in China

noiseIgnore the short-term

noisenoisenoiseOil priceslump

noise

BambooNetwork/SA/Eng

It is through supporting all aspects of each other as a team that we have built an effective company and awarded service. It is by admiring and learning from our competition that we keep ourselves relevant and motivated. And it is through striving for client service excellence that we produce results.

At Argon, we believe that values equal value.

We value relationships because different perspectives create results.

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Best Asset Management

Company South Africa

2015

Best Emerging Financial Services Sector

Company 2014

Best Investment

Management Company

South Africa 2015


Brand South Africa

2015

Best Asset Management Company in Africa 2015

Company with Global Significance

2015

Best Absolute Return

Manager for 2015

Best

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The prophets of doom are at it again. I’ve now seen a raft of predictions for a 2016 global recession. Take the Telegraph. It says: “For many market watchers, a confluence of factors – led by oil, but encompassing China, the emerging world, and financial markets – are all brewing to create a perfect storm.”

The London newspaper goes on to quote Thomas Thygesen, Head of Economics at SEB as saying:

“We are in a very unusual situation where market sentiment is of a different nature to anything we’ve seen before, meaning that unlike previous pre-recessionary eras, the current sell-off has seen commodity prices, equities and credit conditions all move in dangerous lockstep.”

“While a 75% oil price collapse should represent an unmitigated positive for the world’s fuel thirsty consumers, the sheer scale of the price rout is already imperilling the finances of producer nations from Nigeria to Azerbaijan, and

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basis of information of whatever kind published in the magazine.

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Ignore the short-term noise

Market update

‘An increase in volatility need

not be bad news’ 4

Maintain full exposure to

offshore assets in 2016 6

SA investors to look east

for alpha in a low beta world 7

Externalising assets: still

a good idea? 8

What’s the best way of

investing offshore? 9

How bad is China’s slowdown? 9

Offshore investment

opportunities

New investment strategies for a

changing investment landscape? 10

Atlantic Leaf Properties

raises R1.14bn to expand

offshore portfolio 12

Secure an EU passport

in three months! 13

Db X-trackers ETF range

offers immediate offshore

diversifi cation 14

equities and credit conditions

is now threatening to unleash a wave of bankruptcies across corporate America.”

I agree that this year will be a tough one. Indeed, there have been warnings about declining US earnings.

However, there are many who are looking on the brighter side, expecting to see global economic activity slowly improve, led by the US and Europe – and stability in China. (See page 7).

The best idea is to ignore the short-term noise. Don’t dwell on the latest data releases while missing the bigger picture, because there is really very little to suggest a global recession.

Janice

[email protected]

@MMMagza

| OFFSHORE INVESTING |

| MoneyMarketing 2016 | 3BambooNetwork/SA/Eng

It is through supporting all aspects of each other as a team that we have built an effective company and awarded service. It is by admiring and learning from our competition that we keep ourselves relevant and motivated. And it is through striving for client service excellence that we produce results.

At Argon, we believe that values equal value.

We value relationships because different perspectives create results.

www.argonassetmanagement.co.za


Company South Africa

2015

Best Emerging Financial Services Sector

Company 2014

Best Investment

Management Company

South Africa 2015


Brand South Africa

2015

Best Asset Management Company in Africa 2015

Company with Global Significance

2015

Best Absolute Return

Manager for 2015

Cape Town: 1st Floor, Colinton House, The Oval, 1 Oakdale Road, Newlands, 7700, South AfricaT: +27 21 670 6570 | E: [email protected]: 7th Floor, Fredman Towers, 13 Fredman Drive, Sandton, 2146, South Africa

Argon Asset Management is an authorised Financial Services Provider (FSP 835).

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Contents

4 | MoneyMarketing 2016 |


Is China’s slow down as bad as some suggest? China has already benefited

from a lot of the potential ‘low hanging

fruit’ on its growth path. Going forward, the

transition to an economy more focused on

services is likely to be more difficult than the

manufacturing-led growth we have witnessed

for the last 15 years. The difficulty of this

transition is compounded by the very high

level of debt that has been built up in the

expansion so far and a demographic profile

changing from a tailwind to headwind. That

said, crises are very difficult to predict, but

even more so in China, where macro data

is relatively unreliable. From an investment

perspective we see this as a real risk to be

considered, but not an inevitable event.

While GDP growth is indeed slowing

in China, our research indicates that

GDP growth is not correlated with equity

returns, and we believe investors are

generally better-served taking a fine comb,

rather than an axe, to volatile markets.

In our view, China’s recent sell-off has

created selected buying opportunities for

patient, long-term investors. There are still

exciting developments playing out in China,

particularly in its service economy, where

e-commerce is bolstering growth and

employment and many high-quality Chinese

internet companies are now available to

long-term investors at bargain prices.

Is 2016 going to be a year of volatility in global markets?We don’t believe we have an edge in predicting the

outlook for the short-term. However, because global

stock market volatility was below the long-term

average in 2014 and 2015, it would be surprising if

this persisted; in fact, we are already seeing signs of

increased volatility this year. An increase in volatility

need not be bad news for long-term investors – of

course – because swings in sentiment are precisely

what cause share prices to deviate from their

intrinsic value.

We define risk as the permanent loss of capital

rather than short-term price volatility. In many cases,

the risk of loss stems from overpaying for shares,

which leads naturally to disappointing long-term

returns. Generally speaking, we feel that investors

today are paying a possibly dangerously large

premium for the perceived ‘safety’ of developed

markets, which are priced to generate only modest

long-term returns. In our view, the best way to guard

against the risk of loss is to identify undervalued

companies with a significant margin of safety, and

we have found some attractive opportunities among

selected developed market shares. Counterintuitively,

true risk is often at its lowest just when perceived risk

is at its highest. Our bottom-up research indicates

that selected emerging market shares in China, Korea

and Russia are more attractively valued, not despite

being deeply out of favour but perhaps because of it.

We would not necessarily agree with the commonly

held view that shares in emerging market companies

are somehow inherently more risky than their

developed market peers. Clearly, emerging market

shares do come with additional risks, often related

to economic or political instability. But the risk that

really matters to investors is not volatility but rather

the possibility of permanent loss of capital, which

comes about when one pays more for an asset than

it is worth.

MoneyMarketing spoke to Tamryn Lamb, Head of Orbis Client Servicing in South Africa, about predictions for global markets, China’s slowdown, the oil price and growth in India

How is it that countries like India are faring better than others?India has recently claimed the mantle of the fastest-

growing large economy, overtaking China in the last

quarter of 2015. However, we believe India’s new

title is of little importance to equity investors. Our

research shows that GDP growth is not correlated

with stock market returns, which should serve as a

caution to investors considering flocking to India for

its headline growth figures.

As bottom-up equity investors, it is not India’s

GDP growth which entices us, but the valuations of

individual shares. Large swathes of the Indian stock

market, such as consumer shares, command sky-high

valuations while other areas, like infrastructure-

related and financial shares, are deeply depressed.

As contrarian investors, we have focussed our

search on the unpopular areas of the market, and

have uncovered a small number of shares trading at

what we believe to be a meaningful discount to their

intrinsic value.

Will there be an upturn in the oil price around the middle of the year?In the short-term, oil prices are increasingly hard

to predict. While we don’t have a house view on the

oil price, in general, our energy analysts consider

prevailing oil prices to be unsustainably low.

‘An increase in volatility need not be bad news’


| MoneyMarketing 2016 | 5

The current

environment is the

sort of classic supply and

demand situation described

in textbooks. Oil supply has

been greater than oil demand,

so the price has gone down. Unless

something has broken to stop normal

economic responses, supply should fall

to meet demand, or demand must rise to

meet supply. Despite fears that ‘this time

is different’, we do see evidence that both

demand and supply shifts are now happening.

Oil demand continues to rise just fine, despite

concerns about China that have weighed on many

commodities. Unlike resources such as iron ore that

depend on infrastructure spending, demand for oil

and other ‘flow‘ commodities can continue to grow as

countries develop.

On the supply side, many producers cannot

profitably extract oil for US$30 a barrel and they are

responding by dramatically cutting back drilling. In the

US, the number of rigs drilling for oil has fallen from

1 600 in late 2014 to below 500 today. In addition to

drilling cuts, producers have taken a number of short-

term steps to preserve cash flows, such as delaying

well maintenance, pumping at absolute capacity,

and drilling only the most profitable reserves. These

unsustainable measures limit producers’ ability to

ramp up activity in response to a price recovery.

In time, companies will have to catch up on well

maintenance and will exhaust their best assets. When

they do, they may find their recoverable reserves

dented by too-aggressive pumping. At the same

time, hundreds of billions of dollars of longer-term

oil and gas projects have been delayed or cancelled,

which should reduce supply over the medium term.

With constrained production and assuming demand

increases, the world’s oil market could face a

lack of supply unless prices rise high enough to

incentivise new investment. Given this, we believe

the old adage — ‘the cure for low prices is low

prices’— will hold.

Unfortunately, we have felt this way for months,

and the price has just kept falling. We know we

can’t predict when prices will rise, which means

that one must exercise caution when investing

across the energy sector – remaining mindful

of the Keynesian point that the oil price could

stay unsustainable for longer than some energy

companies may remain solvent.

Such companies could have tantalisingly low

valuation multiples, but be on their way to a share

price of zero. Because of this, we don’t regard ‘the

oil price will go up’ as an adequate investment

thesis for energy shares. While we do think the price

will go up, we are only willing to hold inexpensive

energy companies if we believe they can survive

an extended period of low prices and thrive in an

eventual price recovery.

Will there be an upturn in the oil price around

the middle of the year?

THE FURTHER YOU TRAVEL, THE MORE OPPORTUNITIES YOU’LL FIND. 64 000km is a long way to go for a couple of � sh and some squid. But the sooty shearwater knows that it has to make the gruelling journey every year, in order to ensure survival in the long term. We can relate. We understand the importance of gaining access to investment opportunities beyond the 1% of the global equity market represented by South Africa. � at by looking just a little bit further, you can � nd opportunities that you never would have had on your own doorstep. Allan Gray and Orbis, our global asset management partner, know that the choices out there can be overwhelming. So we’ve narrowed down the options to what we think are the most attractive o� shore investment opportunities, in the Orbis Global Equity Fund. We think the sooty shearwater would approve. For more information call Allan Gray on 0860 000 654 or your � nancial adviser, or visit www.allangray.co.za Artist’s impression.

(ii)

(iii)

(iv)

(v)

8892

4/E

Allan Gray Unit Trust Management (RF) Proprietary Limited (the ‘Management Company’) is registered as a management company under the Collective Investment Schemes Control Act 45 of 2002. The Management Company is a member of the Association for Savings & Investment SA (ASISA). Allan Gray Proprietary Limited (the ‘Investment Manager’) is an authorised fi nancial services provider and member of ASISA. Collective Investment Schemes in Securities (unit trusts or funds) are generally medium- to- long-term investments. The value of units may go down as well as up. Past performance is not necessarily a guide to future performance. The Management Company does not provide any guarantee regarding the capital or the performance of its unit trusts. In addition to stock fl uctuations, movements in exchange rates may also cause the value of underlying international investments to go up or down. The Orbis Global Equity Fund invests in shares listed on stock markets around the world. Funds may be closed to new investments at any time in order for them to be managed according to their mandates. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request from the Management Company.

88924-Sooty 135x190.indd 1 2/10/16 2:28 PM



Maintain full exposure to offshore assets in 2016

Investors should maintain a full exposure

to offshore assets in 2016, with the

fundamentals and valuations of global

equities looking far superior to those of

global fixed income assets. This is according to

Herman van Papendorp, Head of Asset Allocation

at Momentum Investments.

“Although there seems to be little to choose

between developed market (DM) and emerging

market (EM) equities on valuation grounds, we

believe superior fundamentals for the former skew

the risk-reward ratio meaningfully in favour of DM

equities, particularly vis-à-vis commodity-exporting

and current-account-deficit EMs.

“Within the DM equity space, the combination of

positive macro-economic realities and preferable

valuations support excess exposure to the

European and Japanese equity markets, rather

than to the US and UK.”

He says massive rand weakness has been a major

contributor to global asset class returns for SA

investors in recent years and has been inextricably

linked to plummeting commodity prices.

“Since the commodity price peak in February

2011, both commodity prices and the rand are down

by more than 50%.

“But with the real effective rand exchange rate

now within 10% of its all-time lows reached in 4Q01

after the 1997/8 Asian/EM crisis and the subsequent

2000/01 Dot-com crash, a lot of bad news already

seems to be discounted by the local currency, hence

likely providing less return support for global asset

returns going forward.”

Nevertheless, he adds that a sustainable and

significant ZAR recovery will be very much dependent

on a meaningful commodity rebound, which looks

unlikely in the near-term against the backdrop of

excess commodity supply and a strong dollar.

“The 2016 returns from global assets will thus

likely be less supersized by rand weakness than

in recent years and will be much more closely

driven by the hard-currency returns generated

by these assets.”

He explains that as long as nervousness prevails

about the prospects for the Chinese economy, as

well as the implications of US interest rate increases

for the global economy and financial markets,

financial market volatility is likely to be the order of

the day.

“During ‘risk off’ phases, perceived safe-haven

currencies like the US dollar and Japanese yen

are likely to strengthen, with resultant negative

implications for dollar-denominated commodity

prices, EM financial assets (currencies, debt and

equities) and global equity markets in general.

“In our view, long-term investors with well-

diversified portfolios that include international

assets should refrain from destroying future

returns by making rash decisions due to short-

term volatility.”

He adds that while short-term pain on portfolio

performance might be uncomfortable in the interim,

the long-term financial wellness gain of staying

invested has been clearly proven over history.

“Indeed, near-term asset price weakness

provides opportunities to add strategic

international exposures to long-term portfolios at

better prices, hence increasing portfolio returns in

the long run.”

Since the commodity price peak in February 2011, both

commodity prices and the rand are down by more than 50%



2016 is expected to be another year

of generally low equity returns in the

low-growth, low-inflation environment,

and will prove to be somewhat of a

challenging year due to elevated valuations in

stable and visible growth stocks and a lack of

discernible catalysts to drive corporate earnings

expectations higher.

However, according to Anik Sen, Managing

Director: Global Head of Equities at PineBridge

Investments, it isn’t all doom and gloom for

the asset class and he expects 2016 to bring

opportunities in long-run themes that play across

several industries. In the equity markets, these

include automation, media, non-residential

construction, the Internet of things, and China’s

‘new’ economy.

“While a new year often brings a renewal of

risk appetite among investors, the coming twelve

months may prove to be less satisfying. We find

that many of the same issues from a year ago

are present today and the global cyclical outlook

remains weak. Further, we believe the world’s

major central banks will continue to be largely

convergent rather than divergent in their actions.

The Federal Reserve is likely to remain highly

accommodative and supportive of risk assets, but

uncertainty about the pace of rate hikes will act as

a headwind and a source of volatility.”

He explains that all this means it won’t be

an easy year for investing in equities. “Index

level returns are likely to be low yet again in the

low-growth, low-inflation environment. Broad-

brush investment style choices, such as among

size, growth, value, and quality, are unlikely

to be rewarded in 2016 due to historically high

valuations and the muted cyclical outlook. The

corporate restructuring opportunity is in its

final stages and may yet surprise with the more

complex and large companies coming under

pressure to improve returns from activist

shareholders. Once again, stock selection

will be key to investment success.”

Sen says PineBridge Investments is

broadly indifferent between the US and

European equity markets but finds

pockets of opportunity in both.

SA investors to look east for alpha in a low beta world

“European equities trade at a

small discount to the US equity

market, which is in line with history.

The trajectory of reforms in many

parts of the European Union, along

with a weakening euro and the

potential for further large-scale

asset purchases by the European

Central Bank, may put Europe in a

more positive investment light than

the US. However, Europe offers a

narrower range of opportunities

at the stock level than the much

broader and deeper US equity

market, and this makes it difficult

for investors to translate a stronger

top-down thesis into similarly strong

bottom-up investment opportunities.

We will also need to monitor closely

the impact of the migrant crisis and

recent terrorist activity on trade and

inward investment on the region.”

Sen believes China equities

will offer attractive investment

opportunities in ‘new economy’

industries in 2016. “Overall, we

expect China to continue to slow

economically and GDP growth

to be supported by ongoing

monetary and fiscal easing, which

are still at an early stage.”

Overall, Sen expects 2016 will be another

year of generally low returns in the equity

markets, but there are always exceptions.

“Our investment process calls for the constant

evaluation of the best investment opportunities.

Over the coming year, we expect to focus more

on the structural changes occurring in Asia and

Japan, as many of these opportunities are in

powerful, long-run investment themes.”

He says Japan equities are likely

to continue to be driven by structural

changes designed to deliver a more

profitability oriented corporate sector.

“In Japan, our investment focus in 2016

is on companies that have differentiated

technologies and supply global industries

that are connected to the structural

change in consumer demand in China and

Asia more broadly. We also focus on those

that are able to show a turnaround in

profitability through restructuring.”


Given that one of the most significant

trends of 2015 was the continued

depreciation of our local currency (with

the rand losing a quarter of its value

against the US dollar in 2015, for a cumulative

decline of 57% since the start of 2011), the question

of whether it is still a good idea to externalise

assets may therefore be on top of your clients’

discussion lists.

There’s more to buying offshore assets than

the level of the rand

Coronation Fund Managers believe the decision

to buy foreign assets in early 2016 should in

the first instance be based on whether you still

believe that global assets offer more value than

local assets over the next several years, and

not in response to the rand’s already significant

devaluation; a decision which may cause some

short-term regret if the currency recovers from

current oversold levels.

A number of the highly rated domestic

businesses have now de-rated significantly, such

that the long-term return opportunity looks more

compelling in our view. While international equities

have done well when translated into rand, the

underlying share prices in hard currency terms

have not performed given the general lack of

risk appetite globally. We feel this concern, which

seems to be driven by fear of a low oil price, is

unwarranted and that many global equities now

also trade at attractive levels. As a result, our

return expectations for domestic and international

equities are broadly equal.

Externalising assets: still a good idea?According to Coronation Fund Managers, a significant market movement is often a cue for investors to do some introspection around their financial affairs

Carefully consider your clients’ needs

It is also important for your clients to understand

that the decision between holding SA versus global

assets is different from deciding whether to hold

foreign assets in a rand-denominated fund as

opposed to externalising their investment by using

their individual foreign investment allowance.

The former decision (SA versus global assets) will

depend on the asset class that offers the highest

return potential over the next several years (as

discussed in point 1). This decision could however

be outsourced to your fund managers by opting

for multi-asset funds that are mandated to invest

across asset classes and geographies.

The externalisation decision is typically faced by

those investors who wish to increase their overall

offshore exposure by adding funds that only hold

global assets, typically because a larger offshore

allocation than allowed by regulation 28 is justified

by their liability profile. These investors typically

also have multiple decade investment horizons and

relatively large discretionary investment holdings.

The key benefit of externalising one’s rand is that

you are better protected against sovereign risk. This

means that an investor is less likely to fall victim to

capital controls during a balance of payments crisis,

which is typically when they would most require the

protection of holding foreign assets.

Furthermore, the decision to externalise one’s

investment (as opposed to investing in a rand-

‘The key benefit of externalising one’s rand is that you are better protected against sovereign risk’

denominated international fund) will be informed by

financial and tax planning considerations. Factors

such as the status of the investor (natural person

or trust); family needs (for example, children on

different continents) and the purpose of their

investment (for example, whether you want to draw

an income) should therefore be taken into account.

Investors with more than R250 000 invested in

a rand-denominated offshore fund and who wish to

diversify sovereign risk, could therefore consider

using their individual investment allowance (up to

R10 million annually for a family of two tax payers)

to externalise their rands.


How bad is China’s slowdown?MoneyMarketing asked Ashburton Investments Offshore Specialist, Dave Christie just how bad the slowdown in the country of the red dragon is.

“Without wanting to sound like

an economist, the answer is not

straightforward; ‘yes’ and ‘no’ is

probably appropriate at this juncture,”

Christie says.

“Data over the past 12-24

months certainly paints a mixed

picture, with ‘yes’ applying to more

industrialised sectors and ‘no’ to

areas of the economy benefiting from

consumption.

“We acknowledge that the latter will

not be large enough to substantially

offset the former in the short to

medium term.

“In addition, the headwinds

generated by the private debt build-up

over the past five years and a high use

of leverage in the domestic A share

market remain significant.”

However, Christie adds that longer

term, selective areas still offer

structural growth for the opportunistic

investor.

He expects 2016 to be a year of

volatility in global markets

“Early January was the worst start to

equity markets in any year in recorded

history. We had several 5-10% intraday

moves in the oil price this year already

and Sovereign funds (oil producers)

liquidating risk assets including equities

to meet their budgets.”

He says some fixed income

subclasses are already at distressed all

time lows in history levels on the back

of energy credit stress.

“And while quality held up well in

January now rotation is setting in – i.e.

all the winners from last year getting

sold: Amazon down 25% ytd, Google

etc. not far behind. So that rotation will

make things even more volatile.

“And then there is another volatility

risk: what if the oil price should

suddenly spike later this year/early

2017? Inflation risk up, costs for

corporates and consumers up and the

R word is back… that’s why I would

position an energy holding as hedge

for an inflation scare (although in that

scenario usually energy rallies and

then sells off with the wider equity

complex)”.

Christie says India is widely regarded

as the globe’s major economy, with a

forecast growth rate over the next five

years of 7.5%+, compared to China,

whose figure is now below 7%.

“The reformist and progressive

government since 2014 is empowering

the individual states to press forward

with a host of infrastructure projects

that will create employment and reset

India on a path to sustainable growth.

“Inflation has been tamed in many

segments thanks largely to Dr Rajan

at the Reserve Bank of India. India’s

long-standing equity market credentials

have helped to create an environment

of strong corporate governance, which

is the envy amongst both emerging

markets as well as developed markets.”

Christie adds that India’s

demographic sweet spot, 65% of the

1.3bn population under 35-years-old,

will drive the domestic consumption

story over the coming twenty years.

“These factors combined create an

opportunity for those seeking to invest

for the medium to long term.”

Offshore investing can be carried out

via the unit trust sector, by way of

rand feeder funds, or by using the

offshore investment allowance.

What’s best though? MoneyMarketing asked Paul

Hutchinson, Sales Manager at Investec Asset

Management to give us his view.

Hutchinson says the optimal strategic allocation to

foreign assets will depend on each investor’s personal

circumstances, risk profile and longer-term financial

planning objectives.

“The different options each have different

advantages, and ultimately the investor has to decide

what suits his/her circumstances best,” he adds.

By investing in a Regulation 28-compliant multi-

asset or balanced fund, the investor gets the benefit

of having a professional make the asset allocation

decisions on their behalf. However, investors only get

exposure to the 25% maximum offshore exposure

limit that these funds must adhere to, and is not using

the full offshore allowance available to investors.

By investing in a rand-denominated feeder fund,

investors do not make use of their individual offshore

allowance and benefit from being invested in funds

that hold offshore assets. However, by being invested

in rands, investors remain exposed to South Africa-

specific risk.

What’s the best way of investing offshore?



“And while quality held up well in

January now rotation is setting in – i.e.

all the winners from last year getting

“The reformist and progressive

government since 2014 is empowering

the individual states to press forward

By investing in a foreign-domiciled international

unit trust that is registered in South Africa, investors

are getting the benefit of having exposure to offshore

assets. Additionally, by investing in the fund’s dealing

currency (be it dollars, pounds or euros) there is less

exposure to South Africa-specific risk.

Hutchinson says that with the rand exchange rate

falling so sharply, Investec Asset Management has

seen greater interest from South African investors

looking offshore.

“We believe that there are compelling reasons

for South Africans to invest offshore, which include

diversification benefits, reduced emerging market

and currency risk, and maintenance of ‘hard’ currency

spending power.”

In the past, many South Africans have favoured

rand-denominated international funds because of the

perceived complexity of applying for tax and Reserve

Bank clearance to invest offshore directly.

“However, now that investors can invest up to

R1 million annually in an international fund without the

need for any prior approvals, they can access foreign-

domiciled international funds with relative ease and

thereby diversify away South Africa-specific risk.

“In addition to this, investors also have a foreign

capital allowance of up to R10 million per calendar

year. In order to use this, they need to obtain foreign

tax clearance from the South African Revenue Service.

Reserve Bank approval is only required when investors

wish to take money offshore in excess of the maximum

total sum of R11 million per calendar year.”

Hutchinson continues to expect a weak, but

positive, global growth outcome in 2016, “and we

believe recession risks in the key developed economies

are exaggerated.”

“In our view, oil price weakness is very much a

supply problem rather than an indicator of collapsing

demand. Although disruptive in the shorter term, weak

commodity and especially oil prices should, ultimately,

be significant positive drivers for global growth.

“In contrast to manufacturing, the much larger

consumer sector is in reasonably good shape across

the developed world and the shift in the balance of

demand will continue to move in the latter’s favour.”

He adds that despite the market angst, “China’s

economy is slowing down in a relatively measured

manner and the capital outflow scare is exaggerated.

This is not to deny the transitional challenges it faces

and that there are downside risks.”

New investment strategies for a changing investment landscape?



BY DUGGAN MATTHEWSInvestment Professional, Marriott Asset Management

The global investment landscape is in the

midst of considerable change, and this

has been reflected by unusually volatile

markets. The two most important factors

to consider are rising interest rates in the US,

something we haven’t seen for a decade; and China’s

economic transition from a production to

a consumption driven economy.

These two significant changes require investors

to seriously rethink the merits of some of the

investments they may hold; investments that have

served them well for the past decade, but are

unlikely to do so for the next decade.

Marriott believes that the best and lowest risk

investments are the well-recognised multinational

companies, which sell everyday consumer goods

into most countries throughout the world. Although

listed on first world stock exchanges, these

businesses transcend geographic boundaries, and

will benefit from the anticipated consumption boom

in the years ahead.

Looking back on a volatile 20152015 disappointed many investors who had continued

to rely on investment strategies that had worked well

in the past. Resource companies, despite the appeal

of ‘attractive’ valuations declined in value by almost

40%. The rand depreciated by 34% against the US$.

Returns from emerging markets were poor, often

compounded by weakening currencies, and rising

government bond yields.

What’s changed?For the past 30 years China’s economy has grown by

approximately 10% per annum – a feat never achieved

before in modern history. This growth has been largely

driven by massive spending on infrastructure.

Since 2000, China has increased the length of

its public roads by over 2.5 million kilometres: a

distance that could take you around the world along

the equator over 60 times. China has also tripled the

number of its large cities – it now has 15 megacities

with populations exceeding 10 million each.

During this period China’s consumption of the

world’s metals increased from approximately 10% to

over 50%. And in the last five years (since 2010), China

has consumed more concrete than the United States

did throughout the 20th century.

This huge demand for ‘capex’ commodities

(commodities used for upgrading physical assets

such as property, industrial buildings or equipment)

resulted in skyrocketing prices between 2000 and

2010. Accordingly, investors with direct exposure

to emerging markets with

natural resources as well as

a high allocation to mining

companies did very well.

Today, China is the second

biggest economy in the world

and is transitioning to a more

consumer-driven economy

as demand for new roads,

factories and housing slows

(there are currently 64 million

unoccupied homes in China).

Not surprisingly, ‘capex’

commodity prices have fallen,

which has resulted in large declines in the share prices

of mining companies and the currencies of countries

whose fortunes are tied to these markets. Considering

the current oversupply of almost all raw materials,

superior returns from mining companies and emerging

markets with natural resources should not be

expected in the years ahead.

The other critical economic change, resulting from

an improving US economic environment, is that US

interest rates are rising for the first time in almost

a decade. This will also have a profound impact on

markets, as the ability to earn acceptable levels of

interest on cash in the bank will likely put upward

pressure on bond yields for years to come. The global

bull market in government bonds has therefore likely

come to an end.

The Opportunity?The investment landscape over the next decade

is likely to be shaped by global consumerism.

China’s infrastructure spend may be slowing, but

household consumption is increasing as more and

more people enter the middle class. This transition

to a consumer-driven economy is a normal part of a

country’s economic development.

Led by China, it is estimated that by 2025 annual

consumption in emerging markets will increase by

$18 trillion and account for nearly half of the world’s

total consumption. This has been described by

McKinsey as, “the biggest growth opportunity in the

history of capitalism”.

Marriott is of the opinion therefore, that the lowest

risk and possibly best returning investments for the



next decade will be those businesses that produce

the everyday products that consumers will demand.

Multinational companies listed on first world

exchanges (such as those in our portfolios) are likely

to be major beneficiaries of this consumption boom.

We believe these companies are ideally

positioned for the following reasons:

1 From pet food to nappies, they offer

goods and services that form an integral

part of our daily lives. Due to the nature of

their products, they tend to fare well in both

recessionary and growth phases of the economic

cycle and are seldom at the mercy of a new idea,

trend or fashion.

2 They have strong brands. Studies show

that in Latin America and developing

sia between 60 – 80% of consumers only buy

products and services from a trusted brand.

3 They have established strong footholds

in emerging markets as illustrated by

Colgate’s toothpaste market share:

In addition to maximising investors’

exposure to multinationals (wherever

possible), investors with Marriott

are well positioned for the changing

investment landscape:

• We have no exposure to resource stocks,

which will likely face headwinds for many

years to come, or to fixed interest bonds

which typically perform poorly in a rising

interest rate environment

• The South African equities we hold are

ones that produce goods and services that

consumers can’t go without, to ensure

dividend growth in a struggling economy.

Mexico 81%

Brazil 72%

India 55%

China 34%

The International Investment Portfolio

Contact us on 0800 336 555 or visit www.marriott.co.za

Personalised Share Portfolio with exposure to the world’s leading companies

Why invest?

• Cost effective: a maximum management fee of 0.75% pa (sliding scale applies)

• Minimum initial investment of £25,000

• Choice of three managed portfolios

• Tax efficient

MitonOptimal South Africa (Pty) Ltd, registration no 2005/032750/07, is an authorized Financial Services Provider, License No. 28160. MitonOptimal South Africa (Pty) Ltd complies with all the requirements of the Financial Advisory and Intermediary Services (FAIS) Act (Act 37 Of 2002). The value of investments and the income from them may vary and you may realise less than the sum invested. Past performance is not necessarily a guide to future performance and no guarantees are offered in respect of investment returns and/or capital invested.

AdvisoryServices

FundManagement South Africa | Guernsey | Singapore | Isle of Man

+27 (0)21 689 3579 | www.mitonoptimal.com

Offering a range of Domestic and Offshore Portfolio Managementand Fund Management Services.

Money Marketing 2016 ad.indd 1 2/26/2016 9:25:12 AM

Atlantic Leaf Properties raises R1.14bn to expand offshore portfolio



Atlantic Leaf Properties, the Mauritian

domiciled property company with

secondary listing on the AltX in

Johannesburg, raised GBP49.5m

(R1.14bn) in capital from investors during the first

week of February 2016. This brings the total funds

raised since listing in April 2014 to GBP135m.

2016 has seen a volatile start to global capital

markets and the company’s ability to successfully

complete this round of funding, is a big vote of

confidence from, in particular, South African

property investors in the management team and

Atlantic Leaf’s strategy.

Paul Leaf-Wright, Chief Executive, and Shaun

Fourie, Head of Asset Management and Operations,

founded Atlantic Leaf Properties in response to

the growing demand for international property

investment alternatives.

The founders have many years of property

investment, structuring and fund management

experience, and Atlantic Leaf is set up as an

independently managed business.

“Our strategy and investment criteria are

intertwined,” says Leaf-Wright. “We invest directly

into quality, durable assets in key Western Europe

economies, with a particular focus on secondary

nodes in the United Kingdom, using a mixture of

equity and debt funding. Our risk appetite is relatively

low and therefore we favour properties which have

long-term leases with blue chip tenants in place.”

The management team has been very active and

prior to this transaction, Atlantic Leaf has acquired 48

properties (let to seven tenants) valued at GBP158m.

The existing portfolio consists of a mixture of retail

warehousing and industrial distribution centres in

England, Scotland, and Wales. All but one of the

current tenants is part of a FTSE listed group.

The new capital raised will immediately be

deployed into six UK-based property assets, including

three industrial properties and three commercial

office properties, for a gross consideration of

GBP107.8 million (including costs). New debt,

representing 55-60% loan to value (LTV), has been

negotiated on attractive terms. These properties have

low credit risk, single-tenant occupation and long

unexpired lease terms, consistent with the overall

investment philosophy.

Subsequent to the latest acquisition, the total

asset value of the portfolio will be GBP267m. The

business is targeting a forward dividend yield

of 7.9% for 2016/17, based on the issue price for

the capital raise of GBP1.08 per share. This in the

context of a stable, low inflationary operating

environment, with solid growth prospects where

financing costs are 3%-4%.

As with other inward listed international property

companies, South African investors can access this

hard currency return without utilising their offshore

investment allowance, making it an attractive Rand

hedge alternative by buying shares on the JSE.

“Given the spread between property yields and

financing costs, it is a very competitive environment”

Fourie adds from Atlantic Leaf’s London offices.

“However, we have been able to leverage off our

collective networks to secure predominantly off-

market transactions and believe that there is a lot

of opportunity for the nimble. We also have been

working hard to ensure that we have a healthy

pipeline in place.”

According to Fourie, the new office properties not

only provide diversification within the portfolio, but

also provide a solid base of stable income which will

allow management to extract value from the current

portfolio through strategic asset management.

This transaction is seen as being transformative

on many levels, particularly when it comes to

broadening and deepening the current shareholder

base – the next natural step to migrating the

company’s listing to the Main Board of the

Johannesburg Stock Exchange from the AltX

during 2016.




Dual citizenship is becoming something

that many individuals want to attain

primarily to assure their family’s

future by protecting against political

risk and economic instability. And dual citizenship

in Europe offers the unique opportunity to enjoy

unlimited access to the whole of the EU & the UK

– you have complete freedom of movement in all

European countries.

Cyprus, an ex-British colony, full EU member and

not part of Greece, currently has the most attractive

2nd passport plan on offer: EU passports are issued

in three months via Cyprus’ “Citizenship through

investment” programme. Purchasing a single

residential property for at least €2,5Million (+VAT)

or a portfolio of properties for at least €3Million

(+VAT) qualifies the main applicant, the spouse and

all dependent children up to 28 years of age to secure

their EU citizenship and passports.

Protect yourself, your family and your assets

from unpredicted events by taking advantage of

the opportunity to secure EU citizenship before the

programme closes: it is open for a very limited time.

Think of getting dual citizenship as guaranteeing your

family’s future.

Cyprus is a very popular choice not only because

of the very quick time for the EU passports to be

issued, but because of the following seven

benefits that are predominant differentiators to

other citizenship programmes:

• You are investing – not donating – your wealth!

After 3 years, you can sell the entire investment as

long as you retain a single property valued at min

€500 000. With a conservative appreciation of 5%

per annum and the same annual rental returns,

you’re looking at min 75% ROI after three years.

• Dependent children up to the age of 28 qualify,

thus giving your adult children the ultimate access-

key to travel, live and work anywhere in Europe.

• Citizenship is passed on by descent, offering a real

legacy to future generations.

• You can rent out the property to earn a

Euro-based income. Some properties are zero VAT-

rated and some come with a rental guarantee

for long-term rentals.

• No need to ever stay/live in Cyprus!

• Secure immunity against future changes in

immigration rules. With the legal right to own

assets you are guaranteed a safe environment

for you and your family.

• No inheritance tax: On your death you can dispose

of your assets to your loved ones without having

to pay the Cypriot government any tax. This is

advantageous for legacy planning.

Some other attractions that having

an EU passport offers:

• Effective tax planning to safeguard your wealth;

• Increased financial and personal privacy;

• Exponential investment opportunities;

• More choice on where to live and retire;

• Visa-free travel to more than 169 countries;

• Freedom to conduct a business with no

exchange control;

• Freedom of education including access to vocational

& continuous training plus the right to possibly

receive free compulsory education;

• Public and private health care in the EU of a high

standard and available to everybody. Your EU Health

Card provides insurance for emergency treatment

when visiting other participating EU countries.

An astute offshore property investment that

works for you in the short, medium and long term is

the achievement of a lifetime. In Cyprus investing in

the ‘Citizenship through Investment’ programme not

only makes financial sense, but it will tangibly benefit

your family for generations to come. Can you afford

not to take advantage of this while the programme is

still open?

Cypriot Realty – a proudly South African company

in operation for nearly eight years – can assist

you. We are recognised and respected as southern

Africa’s authoritative offshore investment specialists,

promoting Cyprus as an ideal destination for acquiring

EU citizenship or permanent residency, property

investment, immigration or retirement and

starting an EU-based business.

Contact us for a confidential meeting to discuss how

we can help you realise your Plan B in Europe.

Jenny Ellinas

Founder & Managing Director,

Tel : +27 83 448 8734,

Email: [email protected]

LinkedIn : https://za.linkedin.com/in/jennyellinas

Twitter : https://twitter.com/jennyellinas

FaceBook: http://facebook.com/CypriotRealty

Visit: www.cypriotrealty.com

Secure an EU passport in three months!


Moneymarketing Feb 2015HR.pdf 1 2016/02/04 11:17 AM



db X-trackers’ ETF range offers immediate offshore diversifi cationMoneyMarketing spoke to Wehmeyer Ferreira, head of db X-Trackers in SA, about Deutsche Bank’s ETF rangeIn SA, is Deutsche Bank still the only group to

offer ETFs invested in offshore markets?

Yes. Since inception in 2005, we have built a strong

brand in the local passive investment industry. Both

institutional and retail investors recognise the value

of db X-trackers as highly competitive products

within the ETF space.

Of the five global ETFs that Deutsche Bank

offers in SA, which is the most popular and why?

Last year was another stellar year from a net inflow

perspective. Our US ETF continued to be a key

driver, contributing about 50% of total inflows, while

the EU and World ETFs contributed 29% and 12%

respectively. Since inception, the US ETF and World

ETF have been our flagship funds and cumulatively

hold 68% of total AUM. In recent years, the US has

remained the developed market of choice, while

investors taking a more diversified approach flock to

the globally diversified World ETF.

How has the take-up of Deutsche Bank’s ETFs as

a tax-free savings vehicle turned out?

All our ETFs are TFSA-approved. Currently, we are

not set up to directly facilitate tax-free savings

accounts. However, service providers like Thebe

Stockbroking, Easy Equities and ABSA Stockbrokers

offer this service. There is strong interest from

investors looking to add db X-trackers to their TFSA

allocation and we anticipate further growth as more

investors see the benefit of a TFSA. Should annual

and lifetime thresholds increase, we expect inflows

to follow suit.

Could you highlight some of the principal benefits

of investing in the db X-tracker ETF range?

db X-trackers offer:

• Immediate offshore diversification

• Access to equity markets and sectors that are

beyond the reach of many retail investors

• Affordability, as passive investment costs

remain significantly lower than the cost of

active investment

• A qualifying tax-free saving instrument under new

National Treasury rules.

The need for offshore diversification has

been quickly realised by South African

investors. For proof, investment advisers

need look no further than the gains made

by db X-trackers, the internationally focused suite of

ETFs marketed by Deutsche Bank.

Its five funds – all JSE listed – mirror the equity

market performance of the UK, EU, the USA, Japan

and a broad mix of developed markets.

The following returns, as at December 31,

2015, were achieved:

Such strong results at a time of subdued

local market performance have contributed to

significant expansion. Across the range, AUM

surged during 2015.

2015 growth in percentage terms is shown below:

Overall, AUM was up 59.76% in 2015 while total

organic inflows approximated R2.2 billion.

Wehmeyer Ferreira, Head of db X-trackers in

South Africa, says the range has emerged as one of

the preferred avenues for convenient, affordable

diversification into global developed markets.

“Investors obtain a Rand hedge and offshore

diversification in a single product,” he notes.

“Both global and local factors underpin the

investment case for offshore diversification.

“The recent bout of economic and political

instability in South Africa alone has hit home for

many investors, forcing them to seriously consider

their overall country exposure to SA and consider

offshore investment options. Further, the impacts

of the global shift out of emerging markets has

illustrated the vulnerability of our market.”

He believes these trends are unlikely to go

into reverse any time soon as multiple drivers

are at work.

Ferreira explains: “Rand weakness is only

one factor. Demand is also supported by the

strategic necessity for portfolio diversification

and balance, the embrace of ETFs

as a low-cost alternative to

active investment funds and the

reassurance of a local listing.”

“That’s why more and more

advisers – and their clients –

are looking offshore.”

For good measure, db

X-trackers are not constrained

by the Reserve Bank limits

on individual investors’

offshore allowance.

Returns and infl ows highlight growth

1 Year 5 Year AnnualisedDBXUK 20.38% 21.53%DBXEU 24.86% 19.08%DBXUS 32.65% 31.46%DBXJP 45.26% 22.62%DBXWD 30.29% 26.51%

DBXUK 40.11%DBXEU 61.59%DBXUS 75.77%DBXJP 132.42%DBXWD 36.35%

Deutsche Asset Management

Access low-cost global diversification through Deutsche Banks JSE listed ETFs and gain offshore equity exposure to the UK, USA, Europe, Japan and Worldwide markets. Simply buy the market.

Globally diversify your portfolio

db X-trackers ETFs – tracking the performance of key developed markets.For more information: www.etf.db.com | Hotline: 011 775 7824 | E-Mail: [email protected]

db X-trackers (Pty) Limited is a registered and approved manager under the Collective Investment Schemes Control Act, 2002. Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. Historic pricing is used. Commission and incentives may be paid and if so, would be included in the overall costs. Exchange Traded Funds (ETFs) are Collective Investment Schemes in Securities (CIS) that trade on stock exchanges. Trading in ETFs will incur the normal costs associated with listed securities, including brokerage, settlement costs, other statutory costs and administrative costs. The price at which ETFs trade on an Exchange may differ from the Net Asset Value price published at the close of the trading day, because of intra-day price movements in the value of the constituent basket of securities. Fluctuations or movements in exchange rates may cause the value of the underlying international investments to go up or down.

db X-trackers ETFs – tracking the performance

www.etf.db.com | Hotline: 011 775 7824 | E-Mail: [email protected]

db X-trackers (Pty) Limited is a registered and approved manager under the Collective Investment Schemes Control Act, 2002. Collective Investment Schemes in Securities (CIS) are generally

You’re on the dusty, open road. A tattered sign outside a petrol station reads: 240kms till next fi ll-up point. You glance down at your petrol gauge. You don’t stop. You keep going and think about that little reassuring needle, comforted in the knowledge that the things we trust most, never stop working to earn it.

To fi nd out how Coronation can earn your trust, speak to your fi nancial advisor or visit www.coronation.com

WOULD YOU TRUST A NEEDLE TO GET YOU THROUGH THE KAROO?

Coronation Asset Management (Pty) Ltd and Coronation Investment ManagementInternational (Pty) Ltd are authorised financial services providers. Trust is EarnedTM.

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mm offshore march2016 - moneymarketingt: +27 21 670 6570 | e: [email protected] johannesburg:...

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