It might come as a surprise to many Moneyweb readers that for a brief – but still far too long — period of my former journalistic career, I was seconded to cover boxing while the incumbent writer was recuperating from a liver transplant. Or maybe he was lying in a plaster cast after the legendary Toweel brothers got hold of him after he wrote a piece on one of the family boxers that they didn’t like? I can’t quite remember.
But what I do remember is that you had to be a skilled writer and an even better politician when it came to writing about local boxing and boxers. This was in the days when a fight between Pierre Fourie and Bob Foster could pull 80 000 people to Ellis Park. I remember one infamous fight where Fourie hid some horseshoes in his boxing trunks to let the opposition think he was a true heavyweight, which he was not.
Write something that someone in the boxing world didn’t like and they would wait for you at the local watering hole and bliksem the living daylights out of you, unlike today where people merely say nasty things on social media.
I didn’t last long as a boxing writer and soon hauled out my university degree, showed the editor that I attended some classes in economics and soon thereafter was wearing a tie and blazer to press conferences where a higher level of civility seemed to rule. Where you were served Earl Gray tea and sandwiches rather than a double Klippies and Coke and half a kilo of blood-red rump steak.
Fast forward several decades to the far more sophisticated world of investments where differences of opinion are expressed in hushed tones and with diplomatic restraint, where arguments are settled with a furious interchange of calculations on a financial calculator at dawn.
But along came a small new entrant into the world of retirement products about 10 years ago — a company called 10X Investments — which has based its marketing campaign on continuous attack, criticism and a general lambasting of everything the traditional retirement industry has done or is still doing.
Active managers, advisors, consultants and investment houses have all borne the brunt of this consistent barrage of criticism. And the message always seems to be the same: the only way to financial salvation is by using this particular company’s investment products to save for your retirement.
At one stage the company publicly stated that investment advisors added no value and were only another layer of fees that should be eliminated. Go direct and do it yourself, was the refrain. This strategy didn’t have many legs and soon thereafter the company appointed ‘retirement experts’ to guide investors into making the right choices.
It is a proven fact that investors who make use of an investment advisor earn a higher rate of growth over time, as shown by the Dalma studies.
‘South Africa: a great place to save for retirement’
But business must be tough and it must be very difficult to convince investors to invest in long-term retirement products that are compelled by law to invest 70% into the SA stock market (it was 80% until recently). As I have shown for several years now, the local market has been the worst-performing stock market in the world.
SA is losing the investment race (ZAR)
(Periods to 21/9/2017)
It is worth noting that while the JSE has been lagging against the major regions of the world, it also now lags its peers in the emerging market world, something that has never happened.
It must therefore have become very hard to not be able to offer your potential clients any offshore investment products, as that is not what you set out to do.
So what do you do? You again lash out at all and sundry and try to portray the returns on the SA-based retirement products in isolation, with no reference to the returns you could have earned elsewhere. Moneyweb readers are invited to read the article here and decide for themselves what the true state of affairs is.
Imagine trying to buy a second-hand car where the salesperson desperately tries to convince you that all the other cars on the market are gas-guzzling rattletraps with high fuel consumption. But said salesperson doesn’t offer the comparative numbers, just those for the car they are trying to flog to you.
The article, for obvious reasons, does not refer to the returns investors could have earned by investing in offshore products over the last seven to 10 years.
This smacks of desperation and shows to me that the flow of money into traditional retirement funds is under pressure. Many high-net-worth investors have curtailed further investments into retirement annuities (RAs) and pension/provident funds, and in some cases have withdrawn from preservation funds due to the low returns earned. Also, investors are looking for living annuities where they can get 100% offshore allocation if needed or desired. This, however, is not what this particular company can offer to clients.
The article tries to paint a picture of so-called ‘experts’, including fund managers and advisors, who – after the rand hit R15.50 recently – have been calling for clients to move all their money offshore. This is rubbish. Nobody has recommended such a move. And nowhere does it mention that the JSE has been the second worst investment market (when compared to the global regions) over 10 years and stone last over seven, five, three and one. This is like selling a motor car with defective brakes and not telling prospective buyers about it. If the author had any integrity, they should have mentioned this.
The externalisation of SA assets has been an ongoing process for many years. I personally cashed out my preservation fund and paid the taxes in 2011 when I saw the commodity cycle turning downwards. I moved this money offshore and invested in biotechnology, technology and other asset classes we don’t have in SA. The returns have been treble that of the returns on the SA market.
It is a matter of record – contained in my articles on Moneyweb, commentary on radio stations and in company newsletters – that I have been recommending offshore investments for many years now.
Most advisors I know have also been recommending an increasing level of offshore exposure to their clients, and the results speak for themselves.
Even the Government Employees Pension Fund two weeks ago announced that it plans to increase its offshore exposure in order to improve investment returns. This in itself is an admission by the largest investment fund in SA – with assets of R2 trillion – that the SA returns do not look particularly good going forward.
10X has focused its marketing efforts on fees, which is its right, and which I support in many instances. 10X only sells regulation 28 products and doesn’t sell products that are 100% offshore. Their marketing efforts are therefore focused on their local products.
It is also incorrect, in my view, to make use of historical investment returns going back 20 years and more, to justify why we should be wholly invested in only the SA market going forward, as it does. I think the SA of today is a different economic animal to the one that existed 20 or even as recently as 10 years ago. The mining industry is disappearing, construction is shrinking and manufacturing is in a deep structural recession. The country’s global credit rating has been downgraded to junk status by two of the three big credit rating agencies and the financial destruction wreaked by the ANC government will take years, if not decades, to repair.
Only yesterday the Fraser Institute reported that SA has dropped 12 places on the World Economic Freedom Index, down to 86 and now well-ensconced in the bottom half of countries when it comes to economic freedom.
Going forward under current circumstances, I don’t see the JSE producing anything like the kinds of returns it used to produce.
And then there is the other fallacy about the JSE being a rand hedge and that investors don’t need to bother about investing offshore. This oft-touted chestnut has been disproved by the performance of the JSE over the past six months; the rand down 25% and the JSE going nowhere.
A recent study by Nedbank also put paid to that theory. In fact, the performance of the JSE has only a 14% correlation with the movement of the rand.
A sober look at the JSE and its prospects
For investors interested in a more detailed analysis of the JSE and its prospects going forward, I suggest you take time to read this report by Sharenet analyst Dwaine van Vuuren. It’s not a sales document but a well-researched economic analysis of the companies listed on the JSE. It does not augur well for future investment returns – or your future retirement pot. Ignore these warnings at your peril.
It confirms other studies I have seen about the earnings prospects of most companies listed on the JSE. Earnings growth of the major SA-based companies has been on a downward trend for three years now – and it shows. Local companies have to battle a barrage of negative factors including surging electricity costs, militant labour, collapsing municipalities, and tighter BEE requirements, to name just a few.
And then there is the land issue, which has exploded on the SA landscape. Please don’t tell me that won’t have an impact on foreign investment flows, business confidence and investment returns going forward. Please, please, please …
You cannot expect only your SA investments to take care of you some 20 or even 30 years into the unknown future. You will probably end up poor, unable to visit your kids and grandkids living abroad, and unable to afford good global medical care.
So let’s settle this argument for all to see. Not with pistols at dawn or fisticuffs over 10 rounds under the Queensberry rules. Let’s do it with real money. I will invest R100 000 of my own money into the 10X High Equity RA fund and an equal amount in the Brenthurst Wealth Global Equity ETF fund.
If the global equity ETF fund is not the winner at the end of five years, I will donate the proceeds of that particular investment to Girls and Boys Town.
* Magnus Heystek is investment strategist at Brenthurst Wealth. He can be reached at firstname.lastname@example.org for ideas and suggestions.