RYK VAN NIEKERK: Welcome to this week’s edition of the Be a Better Investor podcast. It is the podcast where I normally speak to the leading professional investors in the country: the fund managers, portfolio managers and chief investment officers.
But today I’m going to speak to Charles Savage, CEO of EasyEquities, the Purple Group and Global Trader. We are going to focus on EasyEquities, because it’s one of the fastest-growing and pioneering investment platforms in South Africa. It has actually disrupted this market significantly since it launched. Charles, thank you so much for joining me. How many active users do you have on the EasyEquities platforms today?
CHARLES SAVAGE: How’s it, Ryk, and thanks for having me on. Look, at last count we’ve got 1.4 million registered account holders, of which about 750 000 are active account holders. So we are starting to get close to that magic one million active customers, which I think we’ll achieve in this financial year.
RYK VAN NIEKERK: Those 750 000 retail investors – would you regard them as all being retail investors?
CHARLES SAVAGE: Yeah, 100%. I mean, 95% of our investors are first-time investors. We know that because, one, we don’t transfer any assets from other brokers and, two, we kind of ask questions about their experience and understanding. It is predominantly a new audience of investors. It’s not like we’re taking market share away from other brokers; rather, we are focused on building a new generation of first-time investors.
RYK VAN NIEKERK: You’ve grown the market significantly. What are the average portfolio sizes?
CHARLES SAVAGE: On average, the portfolios are around R30 000 per customer. Now that’s a little misleading, and I’ll tell you why. As you will know, this business has got big on us in the last 18 to 24 months; 80% of all of our active investors arrived in the past two years. So, when you look at it through the lens of averages, you’re averaging against a customer base of whom 80% arrived fairly recently. While the average is 30 000, if we go back and look at our customer cohorts from when we started in 2014, those people who joined us in 2014 – who also started with R30 000 back then – are now managing over R200 000 on average.
So the average has skewed the storyline. People start with, if you like, smaller amounts of capital and then, as they become more accustomed and also have more success and are better educated around their investments, they grow their capital considerably.
RYK VAN NIEKERK: And the demographic and the profile of these investors? You said earlier that they are new to the market, but is there a definitive trend as to who is actually looking at markets to try and increase their wealth?
CHARLES SAVAGE: Yes, and this is the stuff that really excites me.
The average age of investors on the platform is 31 years old. Just to give that some context, when we started the business, the average age was 35, so they’ve got younger over the seven years that we’ve been operating.
The competitive landscape is a much more interesting contrast. Our competitors have an average age of around 55, and last year the average age of customers joining the platform was 29. So we’re getting younger and younger and, as you know, time is the biggest asset in investing. So that’s fantastic.
The other demographics which are also interesting is our male/female split, which is now 58%/42% in favour of men, but that’s also a very unusual investor demographic. When we started, it was 85% men, 15% women. The industry looks like that – mostly 85% of investment accounts are male.
But the trend is that more women are joining the platform and they’re joining faster than men are, so we’re going to level the playing fields very soon.
Most likely not this year, but possibly next financial year we’ll have an investor base that is 31 years old, 50% male, 50% female. Then, finally, they will be a true reflection of the demographic of South Africa. So in every way our customers will look like the people that you’ll see when you drive around the streets of our cities.
RYK VAN NIEKERK: I remember that many years ago I saw a statistic that there were around one million retail equity investors in South Africa. I’m talking around [the year] 2000, when the number of people invested in unit trusts was around three times that amount, around three million. Has that dynamic changed? Are people actually starting to look more to invest directly into equities, as opposed to a more conservative unit-trust type of portfolio?
CHARLES SAVAGE: I’ve also been around since 2000. Those numbers for me I think were misleading. Those were the registered shareholders of companies. A lot of those shareholders never pitched up and became retail stockbroking customers.
If we fast forward to 2014, when we started EasyEquities, the JSE had 280 000 active retail investment accounts on BDA. So I think that’s the kind of benchmark that we’ve been looking at – and we’ve increased that almost threefold now.
In terms of your second question, ‘What’s the trend?’ the trend is definitely towards people taking ownership of investing for themselves. That doesn’t mean they’re doing it alone, but they’re forming communities, friendships and alliances in kind of social spaces and doing it together. That is 100% disintermediating the need for them to go to places like the traditional unit trusts.
The second trend is the big move from active to passive, which has played out globally, where passive is now bigger than active in the US. South Africa is nowhere near there, but that passive trend is a trend that’s in favour of retail, moving out of unit trusts again into passive ETFs (exchange-traded funds).
So the trend is 100% towards retail investors taking ownership of their own investments directly. That’s an unstoppable wave now.
I’ve been around long enough to have seen these trends emerge before – [but] it never had enough momentum to survive a crash or a dynamic shift in the market or a breakdown in the ecosystem. Today the ecosystem is very strong and the momentum behind retail investment and direct ownership is too powerful. ‘It isn’t a trend I would bet against’ is the way I would put it.
RYK VAN NIEKERK: Now you’ve revolutionised the industry by allowing fractional ownership, so you don’t need to buy one share. You can buy fractions of it, which was really innovative. But you also offer many other investment products or options on your platforms – crypto, forex and the like. What are people investing in on your platform predominantly?
CHARLES SAVAGE: Roughly there’s about R30 billion in retail assets. When we look at the distribution of those assets, R26 billion of that is in South African equities, and about 3% of that is sitting in crypto. Then the balance of that is sitting in offshore, and predominantly US equities. South Africans are still very biased towards a South African equity portfolio. I have to caveat that by saying that we’ve obviously got quite a strong foreign ETF setup in terms of the number of instruments that are available.
The fact that you invest in South Africa doesn’t necessarily mean that the underlying assets are South African, but the assets are here at home in rands, and people are buying South African stocks and ETFs predominantly.
The trend over the past kind of 12 months has been a greater shift towards international investing, so more and more of our customers are transferring portions of their portfolio to the US. And I really think the dynamics there are a few.
First, we’ve seen a strong rand, and I think every time there’s a strong rand, that’s an opportunity for South Africans just to sort of take some money offshore. There’s been a lot of excitement around US shares in the last 12 months; they had a very strong run up last year, and performance pulls people in. It doesn’t matter what people say – that’s a big marketing ord for US shares.
And then the last thing is that the investment universe in the US is just extraordinarily exciting. If you think about the number of IPOs, the breadth of offering, the diversity of that offering, there are just so many; there are thousands and thousands of investible opportunities whereas, when you bring it back home, there are only a couple of hundred investible opportunities here. I think the trend is going to continue that South Africans will seek out the best investment opportunities that most engage them, excite them, and match their needs in terms of their desires and wants.
So unless South Africa raises the bar on what the investable options are here at home, then I think we’re going to see more and more money shift offshore.
RYK VAN NIEKERK: I think that’s been the trend for most investors – institutional as well as retail. The investment universe in South Africa is really, really small relative to the rest of the world. But the investment trends from these new up-and-coming investors – are they investing every month, do they manage lump sums, are there clear trends in that regard?
CHARLES SAVAGE: You noted that we were the first to do fractions. In fact, we were the first to do it globally, which I’m still very proud of. Fractions was a problem statement. How do I invest in Naspers if all I’ve got is R100? But one of the unintended outcomes of fractions is that any amount of money is an opportunity to invest.
What we find is that people save small increments of money and make several deposits a month, so literally save the coffee money today and invest tomorrow – and they do that regularly throughout the month.
They pitch up way more often than we expected. They make micro-deposits all of the time, and every time there’s a deposit there’s a reason to go and invest in something new. The trend is that they pitch up on average 10 times a month. On average they make between five and seven deposits a month and then commensurately they’ll make about 10 new investments from those five to seven deposits.
So [with] the frequency, if you stand back from it, you’d say, oh gosh, they’re trading, because that’s 10 transactions a month. But when you look at the data, the reason they are investing so much is because their frequency of deposits is so high. It’s not about the fact that they’re changing their portfolio and turning it at over and trading the stocks.
RYK VAN NIEKERK: That’s very, very interesting. Let’s talk about performance. How good are these investors? Do you have any indication of the returns they are getting?
CHARLES SAVAGE: Yes. We track that. We look at EasyEquities. We say so what if it was a unit trust? If this R30 billion was a unit trust – forget that there are a million managers on this unit trust – what’s the overall return that they’re generating? They beat the index. That puts them in the top 10% of managers in the country. So, as a collective of a million managers managing the R30 billion unit trust, they beat the underlying indices that they’re investing in, the stocks that they’re investing in, which is kind of not what anyone expected, I guess. We certainly did. For my money, I’ve been around retail investors for 20 years and,
…retail investors are smart, savvy and have access to the same information that everyone else does, so why should they not be able to perform at the same levels?
I think the other thing is that managing your money brings you much closer and engages you much more with your investment decision-making than giving your money to someone else. What I mean by that is that they’re educating themselves along the way. One investment leads to more education, which then leads to more investments, which leads to more education, which fundamentally in the result leads to better investments.
[Of] the kind of textbook things that I was taught before I entered the market, the first was that retail investors were stupid. Well, that’s not true. The second is that retail investors run from a storm, so if there’s a crisis they run away. That’s also not true. We’ve been around long enough to see what their behaviour is through a few crises and actually, every time the market pulls back, there’s a greater wave of money than when the market was going up. We’ve just had it in January; US stocks took a big hit and the expectation was that retail would run for the hills. They didn’t. They arrived at the hills with more money than they were putting in for the previous quarter. So they are smart, they are savvy they’re beating the indices. On average, the kind of alpha that they’re generating is double-digit above the index, which is kind of crazy when I think about it. But they’re doing a great job and they’re super smart.
RYK VAN NIEKERK: When you say index, you refer to the JSE Alsi (All Share)?
CHARLES SAVAGE: Yes. The JSE Alsi on the South African market, and in the US the S&P 500 and just the major market benchmarks. We’re not using the CPI as a benchmark or something like that.
RYK VAN NIEKERK: Last week I spoke to Dr Andrew Dittberner from Old Mutual, of course, and he said in their private clients’ portfolios they’ve got a 10-year investment horizon, and they normally trade around 10% per year. So it is a very long-term focus. Are your investors or your clients investing for the long term, or are they actually pretty active in trading regularly?
CHARLES SAVAGE: The average turnover of a portfolio per year is 60%, which means they’re selling 30% of their holdings, and then buying the 30% again. Interestingly, if you go and look at the unit trust world, that’s the same average as the unit trusts across the spectrum for a high-equity portfolio, so these guys are obviously high equity because that’s all we’ve got on the platform. They are trading in the same amount as the typical asset manager is trading.
I think the thing that is interesting to observe, though, is they are 100% long term. The reason that we know that is that their portfolios are rising for two reasons. The first is their own efforts. They increase their NAV by 12% year on year by adding more money, so they’re finding more money every year to add to their investments. And then the second thing is that they get a market uplift of an average of around 12% to 15%, and so their portfolios are increasing close to 30% year on year.
RYK VAN NIEKERK: The investment approaches of these individuals and investors? Of course your professional investors have got massive spreadsheets and they insert hundreds of different numbers and figures and ratios into those spreadsheets, and then they identify certain companies who adhere to their investment criteria. Retail investors do not tend to do that because it’s really, really complicated. Do you have any indication of the amount of research your clients do before they actually invest?
CHARLES SAVAGE: Look, a lot of their research is collaborative, and you can see on social media they’ll form these groups on Twitter through [Twitter] Spaces and they’ll have a discussion around a stock or they’ll host a CEO. For example, I’ve been on a few where thousands of these retail investors arrive and ask me questions on the company, what we are doing, what our strategy is, what the future looks like. They do a lot of that. But it’s collaborative research.
The other thing they do is that there are leaders within the social community that are publishing research, and they consume it with a massive appetite. Some of those are actual traditional analysts. So you see guys like @smalltalkdaily…
RYK VAN NIEKERK: Small Talk Daily, yes.
CHARLES SAVAGE: That’s it, Small Talk Daily. He’s a professional analyst. When he publishes his stuff on social media the appetite to consume it is massive, and so they are consuming lots and lots of research. They’re not doing it in the traditional way. They’re doing it in social places where they feel safe to have conversations around research and stocks that they are interested in, and they’re spending an extraordinary amount of time [on that].
The number of times I’ve logged on to Twitter and at nine o’clock at night there’s a Spaces going on talking about Renergen or Purple Group or Naspers or whatever. They’re consuming a lot of content and they’re creating their own content as well between each other, and sharing that among the community. That’s a really powerful force because, as you will know, research was the privy of the institutional investor. We bought it, we kept it for ourselves, we didn’t share it with our communities. That’s done now.
We’re seeing research being democratised, given away to the communities, and people are sharing this research and their ideas and collaborating around to the benefit of everyone. So it’s like Ubuntu for research.
RYK VAN NIEKERK: Yeah. I think Small Talk Daily is Anthony Clark, if I’m not mistaken.
It’s a very, very positive story we hear from any asset managers – that they battle to actually beat their respective benchmark indices. It’s really good to hear that there is a growing number of people who actually take their destiny into their own hands and start to invest, because it’s not only to increase wealth but also it increases your knowledge and understanding of how the financial markets work.
How often do you have non-financial interaction with clients?
CHARLES SAVAGE: All the time. All, all the time. It’s literally daily through our social engagement. We run webinars, seminars, we’ve got a podcast called ‘Easy Does It’ that we’ve put together. So lots and lots of it.
I just want to go back to your point about investing. For me investing is like creating a team for your wealth creation. If you don’t invest, you’re basically saying to yourself that you’re going to create your own destiny, you’re going to be responsible for all of the wealth and outcomes for you and your family and the generations thereafter.
The way that I look at investing is to create a team for your success.
For me to invest in companies like Amazon and Alibaba and Apple, and locally here back here at home Renergen and Naspers, allows me to sit right next to the CEOs of those organisations, learn from their strategies and moves, but also have them on my team for wealth creation. It’s just such an empowering force.
So yes, I invest for profit. I can’t tell you how long I was investing in Amazon before it made a cent, but I never begrudged the investment because the annual letter that [Amazon founder Jeff] Bezos wrote, for me was more educational and had better outcomes than the investment for the first decade. Today I’ve made a lot of money by being invested in Amazon, but I learned so much by standing close to these CEOs.
For me investing is a team sport and it’s about creating a long-term destination that gives you a better chance at successfully retiring wealthy.
RYK VAN NIEKERK: Charles, thank you so much for joining us today and sharing your insights. It’s a really good, positive story and hopefully it can continue because there are a lot of challenges in South Africa. But it seems a lot of people are taking on the investment challenge and succeeding. Thanks for your participation today.
CHARLES SAVAGE: Thanks, Ryk – love being on your show. Appreciate it.
RYK VAN NIEKERK: That was Charles Savage, the current CEO of EasyEquities, as well as the Purple Group and Global Trader.