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‘Buy low but stay conservative’

Esmerie Pienaar of Brenthurst shares advice for the investing public and navigating funds as a boutique asset manager.

WARREN THOMPSON: Joining me on the Click an Advisor podcast this week is Esmerie Pienaar – she’s a financial planner with Brenthurst Wealth. Good to have you with us, Esmerie.

ESMERIE PIENAAR: Good day, Warren, thanks for having me on your programme.

WARREN THOMPSON: ….You’re involved in advising clients on where and how to invest. Just to start off with, tell us a little bit about yourself, Esmerie.

ESMERIE PIENAAR: Warren, I started at Brenthurst in 2009. I was very low in the ranks: I started as a PA and worked myself up to financial advisor. During the course of working with Brenthurst I did my CFP degree, I finished my BCom degree and then I did my, under supervision, Certified Financial Advisor and now basically for the last year and a half [I’ve been] a fully-fledged financial advisor giving clients advice.

I also deal with our foreign exchange department, helping clients to move funds offshore, not just clients doing foreign investments through Brenthurst but also clients who want to move some funds to their foreign bank account or whatever movement of funds they want to do I facilitate and handle that department within Brenthurst.

WARREN THOMPSON: So Brenthurst has been very formative in the way that you think about investments, but give us an idea of how you would describe the investment philosophy at Brenthurst?

ESMERIE PIENAAR: Well, basically the philosophy is always to do investments in the best interest of the client. We are not here to time the market. Obviously getting best returns is always the best thing, but we look long term and we try to put the client first and what the client’s needs and objectives are, that’s Brenthurst’s philosophy. We always investigate opportunities where we can find good investment opportunities for our clients, but we tend to stick to the longer-term philosophy, choosing good fund managers that have shown previous performance, but not just performance – also the way that they do things, the size of the fund, the mandate of the funds and whether that is within the strategy of Brenthurst. So we stick to those types of funds. But at the end of the day we always say ‘do everything in the best interest of the client’. If you stick to that philosophy you can’t go wrong.

A road map of the asset classes

WARREN THOMPSON: The philosophy: I imagine you are very focused on the long term, so at this point it’s very tricky asking a financial advisor what asset classes the person should invest in or what asset classes you prefer, because obviously time to retirement is a key factor in calculating that. But certainly you have views on asset classes and you would favour some over others or you would replace some with others. Just take us through a road map of the asset classes and how you are thinking about them at the moment in your investors’ portfolios.

ESMERIE PIENAAR: Asset classes is actually the main thing that forms part of when you decide where you are going to invest for a client because that’s what’s going to determine your performance in a fund. So when we look at asset classes we look at what the client’s objectives, term and so on is, and at the moment with the quite volatile environment economically, not just here in South Africa but globally there is big uncertainty, markets are very volatile at the moment. So at the moment we are looking more at and favouring bonds and cash, we’ve done quite a few moves in our portfolios just for that protection for the uncertainty of the following years to come. We’re quite hesitant on getting too much equity exposure, not that we’re saying that we are totally off equities at the moment, we just feel that the protection with the portfolios is more important at the moment with all the uncertainty. As you’ve always heard Magnus say, offshore is also quite a big facet that we look at and it’s not necessarily that it’s seen as an asset class but we do bonds and cash, equity, foreign exposure as well. But at the moment we would say bonds and cash, given the uncertainty, is the way to go at this point in time.

WARREN THOMPSON: That’s obviously primarily locally or is that the case overseas as well?

ESMERIE PIENAAR: That’s the case overseas as well, we could use a bit more equities in the foreign market but yes, it’s very volatile at the moment but locally if you look at your local exposure will pay bonds and cash, and then lean more to the equity side when you look at foreign exposure.

Uncertainty in the economic environment

WARREN THOMPSON: When you talk about uncertainty what are you referring to there? Some of the companies on the JSE are very large multi-nationals and almost all of them going into the mid-sized space are generating a fair amount of income overseas, so when you talk to the uncertainty what are you guys specifically uncertain about?

ESMERIE PIENAAR: The uncertainty is where the economic environment is going. Politically we are a very politically-driven economy, we are not sure what the president is going to do going forward because that has quite a big impact, what our inflation rate is going to do, which has actually come down again to 5.1%, last month it was 5.4%, so there’s uncertainty as to what the Reserve Bank will do regarding interest rates. All of those factors have quite a big impact on the fact of saying uncertainty. If you just look at the performance of the JSE compared to foreign markets it’s astonishing to see how the JSE underperformed the foreign markets. So the uncertainty is basically economic, are you facing another downgrade, which could have detrimental effects on our local market, so it’s basically that uncertainty that I refer to.

WARREN THOMPSON: With some of the interactions that you are having with clients at this time, tell us what is keeping them up at night and what are they concerned about when they talk to you about their money?

ESMERIE PIENAAR: At the moment if you take the last two years you will see underperformance over a vast number of asset classes funds and that’s the big thing, clients are scared, especially for clients who are drawing an income it’s a big thing that keeps them awake at night, is my income going to keep up with my lifestyle, will I still have enough income for the time that I am still alive, have I provided enough for myself. You’ve done all this work and you’ve saved up all this money to provide for your retirement and if you have markets performing like they have in the last year or two it almost feels like you’ve worked for nothing. So that’s the main thing and it’s so difficult because we keep on saying just stick to your strategy, as long as you have your portfolio in line with your strategy markets do have movements and we are structuring the portfolios in the wake of coming scenarios for the next two or so years. But the main thing is when they say every aspect of my portfolio is down, where should I go with my funds and that’s the difficult thing to tell clients to just stay invested, your portfolio is structured in a way to protect you in downturns. So that’s what’s currently keeping clients awake at night.

WARREN THOMPSON: What are the three biggest mistakes that investors make, when you go and speak to a new investor or you perhaps speak to a young person or you get a new client, what are some of the mistakes that people tend to make?

ESMERIE PIENAAR: Mistakes can depend on each scenario, so, for example, for a younger person the mistake is not saving enough soon enough. A lot of young clients will say I’m still young and I’ve got all this time ahead of me to save up. So not starting soon enough with your savings or clients who are retired already and taking monthly income but taking too high an income and that’s a difficult scenario to say it’s a mistake on the client’s side because everything just keeps on getting more and more expensive and you’ve only got a certain amount of funds. I would say taking too big an income from your retirement fund is a mistake because people are living longer. The other thing is acting too emotionally when it comes to your investment, I think that’s almost the biggest mistake across the board. I know it’s not a good feeling to see your funds going down for a period of time but I would say not to act impulsively, not to redeem your funds as soon as you see it’s going down a bit, it’s a very difficult thing and it’s human nature to act like that but that’s a big mistake, people get too emotional when it comes to their investments and they think they should redeem everything when the market is down, which is actually the worst mistake you can make because you are effectively selling low. So I would say those are the three big mistakes.

Selling is the biggest mistake when markets are low

WARREN THOMPSON: So is that the biggest challenge in your job, trying to convince people to be counterintuitive and perhaps invest and buy when everything in their emotional make-up is telling them to sell?

ESMERIE PIENAAR: Yes because that’s the biggest thing and if you think about it you should actually buy low not sell low, that’s almost Investment 101. You shouldn’t sell low, you should sell high and you should by low. That’s the most difficult part of dealing with clients and I totally understand it because it’s your funds, it’s the basket of funds that when you retire you have to live off, so you can’t have two or three years of underperformance, so obviously you want to make a move but the biggest mistake is to sell when markets are low because you are selling at a low point. So that’s basically the emotional side of it is to sell at a low point, so when you sell you will effectively make a loss but when you are still invested you haven’t made your loss yet, you are still invested in the market, so that’s the message I want to get to the clients.

Fees

WARREN THOMPSON: Now, we always get to the tricky part of the fees, with markets falling it’s very hard for everyone in the financial investments ecosystem to charge fees, starting with you as the advisor and all the way through to the platforms and the investment managers at the end, how are fees charged and how have they been evolving the last few years?

ESMERIE PIENAAR: Fees are one of the biggest points where you would have someone, I want to say an argument but it’s not necessarily an argument, it’s always a topic of discussion I would say with 95% of clients and that’s to be understood because if your funds are underperforming but you still have to pay these big fees it doesn’t make sense. So that’s why a lot of clients are not happy to pay too high a fee. Effectively in an investment there are three fees, your fund manager fees, your platform fees and your financial advisor fees, and these three are annual fees. There were performance fees in the past but that has moved away from the market quite a lot. So you get your standard fees, I would say we try to, in a way, justify our fees by giving our clients exceptional service, looking after their portfolios and just to justify the fees. But the fees have gone down quite significantly, it’s very competitive out there, a lot of asset management companies have actually neutralised across the board on their fees, so they are very competitive at the moment. So yes, fees are a very tricky point and a very touchy subject when you talk about it but we’re not set on our fees, we do negotiate with clients but we do feel that we do weigh up what we offer the client for the fees. If we were not doing anything for the client it justifies not asking a big fee but we think that we do a lot for clients to justify the fee that we ask for investments through Brenthurst.

Brenthurst’s success

WARREN THOMPSON: Brenthurst was recently nominated the top boutique wealth manager in the Intellidex Survey and was fifth overall when compared to some of the large banks and investment houses. So tell us a little bit about why you think the company that you work for has been so successful and why it’s been so highly regarded in this particular survey?

ESMERIE PIENAAR: Yes, that’s actually a great point of honour to work for a company like Brenthurst, receiving these awards from the Intellidex Survey. It’s hard work, it’s the team behind Brenthurst, when you deal with an advisor it’s not just you and the advisor, there is such a big team behind that advisor, our management staff is a big contributor to the way things work within Brenthurst, the way that we deal with clients and the way that we handle each situation, it’s basically just the entire support team that’s driven us to this point of receiving these awards. It’s a big honour to be working for a company like Brenthurst that can say we’ve got these awards and we are competing with the big private banks and big companies, as a boutique wealth manager we are quite proud of this achievement of receiving this award.

WARREN THOMPSON: What do you think a client of a big bank or a big organisation would find different if they came and dealt with Brenthurst?

ESMERIE PIENAAR: I would say you are dealing with a financial advisor directly and I don’t want to say anything bad about any of the other institutions because everybody has got their way but I think it’s just that personal touch, you are Mr X or Mrs Y, you have a personal relationship with your financial advisor and you basically become part of the Brenthurst family and I think that’s nice because you want to be dealt with personally when it comes to your investment portfolio. Another nice thing is that we’re not just giving advice on financial investments, we also have other service offerings such as we have a tax person who can help you with your tax, we also have a lady working with estates, so she can help you with wills. So it’s basically having a lot of services under one roof, so I would say that’s the nice thing, the personal touch to being a client of Brenthurst Wealth.

Navigating funds as a boutique asset manager

WARREN THOMPSON: So the boutique model, though, the offshore investments just completely dwarfs the local market by comparison, so how do you go about navigating the sheer number of funds that you could potentially use overseas, the markets you can invest in and the fund managers you can use, how do you go about being a boutique asset manager?

ESMERIE PIENAAR: Warren, as you said, there are a lot of funds that you can choose from and there are a lot of funds that are performance based, a lot of people say why don’t you just choose the top ten performing funds. We don’t just look at performance within funds, we do in-depth investigations into the fund to see where this fund manager invests, what’s the mandate of this fund manager, does it fall with Brenthurst’s strategy of investments, what’s the size of the fund, what is the underlying asset class allocation within the fund, what restrictions are there regarding movement that the fund manager has within the fund. It’s not that we don’t look at historical performance, we do look at historical performance because it gives you an indication of what to expect going forward but it’s those factors that we would take into consideration. We also look at FSB-approved funds, so it’s quite a big investigation that goes on behind the scenes, as I mentioned earlier, there is a big team behind each financial advisor to make sure that the funds that we invest in are within Brenthurst’s strategy, we are happy to invest in those funds, we know the fund managers. So those are the factors we take into consideration when choosing funds and it’s not a once-off decision like we’ve chosen this fund and we’re using it for the time going forward, it’s a constant investigation into funds, is the fund manager we are using still sticking to the strategy, are they doing funny things that we feel may fall not within their mandate, so we constantly keep an eye on the funds. We’re not opposed to any new funds but we do our investigation as to which funds we use in our portfolio and we constantly try and keep up with market movements, where the economy is and we try to select our funds according to that to stay within Brenthurst’s structure.

WARREN THOMPSON: If you had a client who had the luxury of moving most of their wealth overseas already and you had to come with an asset allocation strategy, how much money, assuming there were no limits to how much they could invest offshore, how much money would you suggest to invest offshore versus locally?

ESMERIE PIENAAR: There are two sides when you say invest offshore, you get direct offshore so that your rands are moved physically into another currency, be it dollars, pounds euros, Australian dollars or whatever the currency is, so that’s one facet of it, physically having money offshore. Then you can also have offshore exposure within a local investment platform, where you have asset-swap funds within a portfolio and you get foreign exposure in that way, so your money is still in rands but you get exposure to those foreign companies. Direct offshore investment is not for everybody, you can’t come and say here is my entire life savings, I still live in South Africa but I want to move everything offshore because in that case it doesn’t make sense, you are still living here, you still need to receive an income on this side. I would almost say that direct offshore is funds that are additional to your current wealth portfolio locally I would say are the types of funds that you would move directly offshore and then you can build foreign exposure within your local portfolio by way of asset-swap funds, locally I would say looking at about a 30% to 40% allocation to foreign assets, be it bonds, cash, equities and then having out of your portfolio direct foreign exposure, I would say out of the entire portfolio also about 40% directly offshore.

WARREN THOMPSON: Okay, great, so I think just to round out the discussion now what’s your advice to the investing public right now?

ESMERIE PIENAAR: As I said earlier, buying low is a good buying point but I would still be quite conservative, especially for new people investing at the moment, even though the market is at quite a low point you will be buying in low but that’s not to say where the market is moving going forward. I would say quite conservative at the moment. For the clients invested already, just stay invested, make sure your strategy is in line with your personal circumstances, your risk profile and your objectives of your investment, as long as you are in line with that and it’s structured more on the conservative side for the time being I would say that’s still the way to go. So stick to your strategy and don’t do emotional investing in this difficult time that we find ourselves in at the moment.

WARREN THOMPSON: Esmerie, we’d like to thank you for your time, your advice and your insight. We hope that our listeners pay attention to what you’ve told us. If you have any enquiries or you’d like to get in touch with Esmerie she’s at the Brenthurst Group, you can Google them and get in touch with her. Thanks very much again.

ESMERIE PIENAAR: Thank you, Warren, for your time.

WARREN THOMPSON: That was Esmerie Pienaar, financial planner at Brenthurst Wealth.

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