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May 2022 – Monthly Newsletter

Investments in uncertain times!

Over the past three years the Johannesburg Stock Exchange All Share Index has performed well. Last year the Index had its best performance since the crash in 2008! The table below reflects the performance of the Index over the past three years.

JSE ALSI returns
2019 12.0 %
2020 7.0 %
2021 29.2 %
2022 (Year to date) -8.62 %

The South African market is heavily influenced by world events and the recent uncertainty regarding the Russian invasion of Ukraine, the lockdown of the China economy again, rising interest rates, increases in global inflation and the cost of living and the ongoing COVID pandemic have negatively affected the South African market. South Africa, of course, has its fair share of domestic concerns – corruption, maladministration, unemployment, the devastation of the Kwazulu-Natal floods, and Eskom turning off the lights again, and again, and again, all take a toll on the domestic economy.

All these factors make for worrying times for investors. Many investors are currently very anxious regarding the declines experienced on the Johannesburg Stock Exchange over the past quarter. Whilst it is never easy seeing declines in a portfolio, investors are reminded that stock markets never go up in a straight line.

The world consists of “up” and “down” cycles. Stock markets go up and down, the property market is buoyant and then stagnant. Once all the dust has settled markets will go up again!

Declines in the stock market are quite normal and should not be regarded with fear! We, at Kevin Mills Financial Services, have always made it abundantly clear that markets go up as well as down! From time to time all markets decline! This is quite normal and part of the dynamic of any stock market. It is quite, quite normal.

Volatility in the market presents opportunities for Fund Managers to purchase shares that they believe will provide superior long term returns at reduced prices. Short-term market uncertainty offers long-term investors a great entry point into the market.

It is human nature to be anxious and worried about what the future may hold and unfortunately, we cannot predict a “silver lining.” However, investors should not lose sight of their investment goals in times of uncertainty.


So, what should investors do?

  • Stick to your investment plan. Declines in the stock market are quite normal.
  • Don’t buy high and sell low. That is irrational and guarantees losses!
  • Ignore all the noise in the market from people who don’t understand the markets.
  • You have probably invested with fund managers that are rational, competent, experienced and who have spent an enormous amount of time studying the markets. Trust them

“If You cannot control your emotions, you cannot control your money!” Warren Buffet

Marriott First World Hybrid Real Estate Fund

For investors looking to diversify their investments, we continue to favour offshore markets as a way of protecting your capital and providing inflation beating returns in the long run.

The Marriott First World Hybrid Real Estate Fund is a direct real estate portfolio of UK warehousing and regional offices as well as listed REITS, generating a reliable, growing income.

The objective of this Fund is to combine the benefits of direct and listed First World real estate to generate a reliable, predictable and growing income. With the majority of the return generated from the income yield, the investment outcome can be anticipated with a reasonable degree of certainty.

The fund’s primary focus is to provide investors with a predictable level of income. The fund has an income yield of 4.5% in Sterling and is anticipated to provide investors with returns of 6 – 7% in Sterling per annum.

“Real estate investing, even on a very small scale, remains a tried-and-true means of building an individual’s cash flow and wealth.” – Robert Kiyosaki.

 

June 2021 – Monthly Newsletter

“I’m sitting on the moon, watching planet blue, hello…” – Enigma.

In her book, Abounding in Kindness: Writings for the People of God, Elizabeth Johnson reflects on astronauts who have seen Earth from outer space. She notes that the astronaut, Rusty Schweigert, who walked upon the moon, had this to say: “From the moon, Earth is so small and fragile, and such a special little spot in the universe that you can block it out with your thumb. Then you realise that on that spot, that little blue and white circle is everything that means anything to you – all history, music, poetry and art, birth and love and death, tears, joy…”

Contemplating Rusty Schweigert’s comments I began to muse. Supposing one was sitting on the moon gazing down at this beautiful blue planet Earth, contemplating where to invest one’s savings. Where would one invest?  Of all the countries in the world, would an investor seriously consider South Africa as the ideal county to invest in? Probably not!

South Africa represents less than 1% of the world economy and only has approximately 400 shares listed on The Johannesburg Stock Exchange.  In contrast, according to the Organisation for Economic Co-operation and Development, in 2019, there were around 41, 000 shares listed in the world with a combined market value of US$80 trillion. An investment offshore adds portfolio diversification to the one’s portfolio. Investing offshore diversifies the political risk associated with South Africa. The opportunities for investment globally are simply enormous!

In March 2020 Moody’s downgraded the South Africa to “junk” status with a negative outlook because of South Africa’s weak economic growth and ongoing deterioration in the government’s fiscal strength. “Junk” ratings exist to warn investors about the risks of investing in a particular country or investment asset.

The socio-political environment in South Africa does not look great either – unemployment, increasing government debt, government spending much of its revenue on paying salaries to bloated government employees and dysfunctional state-owned enterprises. There are daily media reports of wasteful and fruitless expenditure and on-going corruption and lack of accountability for dishonesty – unbridled corruption with very little consequence.

One’s investment first choice location is probably not South Africa!

Sitting on the moon, one might ask oneself “What currency would I like to own? US Dollars, Sterling, Euro or perhaps South African Rand?” Hmmmm…. Probably not South African Rand!  

In April last year a US dollar cost over R19. At the beginning of June, a US dollar cost around R13.40. Currently a US dollar costs around R14.10.  So, buying US dollars is 25% cheaper than it was a year ago! History has shown that over the last twenty years whenever there has been a strengthening in value of the Rand [and it is difficult to understand why the Rand has strengthened so much] it has been followed by a sharp decrease in value. At a 25 % discount it is an excellent opportunity to invest offshore!

Over the past twenty years the South African Rand has depreciated against the three major currencies (US Dollar, Sterling and the Euro) by +/- 4-6% per annum. This means that if the South African rand continues to decrease in value, the value of the investment will increase in Rand value. The Rand is expected to continue to devalue in the medium to long term.

Give us a call for more information on investing offshore. We look forward to presenting the opportunities to you.

“The moon stays bright when it doesn’t avoid the night!” – Rumi

Business as usual!

Never has the world experienced a global health crisis of this magnitude as the risks of Coronavirus (COVID 19) intensify across the United States, Europe and within our own country, South Africa.

The surge in Covid 19 and the Delta variant, last night forced President Cyril Ramaphosa to place South Africa in lockdown Alert 4 from midnight on 27th June 2021.

Our offices will close on 27th June 2021, we will all be working from our homes. It will be business as usual except we will not be able to have any face-to-face interactions. We can be contacted on the following contact numbers:

Please give us call us if we can assist you with anything.  We will do our best to provide the best service that we can. 

These are worrying times! We have never experienced a crisis of this magnitude and the disruption to our day to day lives, to society and the economy. We are being asked to make sacrifices to combat this virus and with it comes the anxiety of the isolation from family and friends. This disease can be defeated! We urge all South Africans to stay at home, keep safe and assist in combating this virus.

We pray that you will all stay healthy and well!

Healing God, bring healing to those who are sick with the Coronavirus and be with their families and neighbours. We pray especially for those who are isolated, that they may know your love. Stay by our side in this time of uncertainty and sorrow.

October 2020 – Market update

In search of returns…

Over the past few years, it has become increasingly more difficult to find funds that are providing meaningful returns in South Africa.

We have highlighted some of the returns received on investments in South Africa for the past year. The figures represent the average of all the funds in their sectors.

[Figures supplied by Morningstar from 1st October 2019 to 30th September 2020.]

  • South African Equity Funds: -2.87%
  • South African Balanced Fund [high equity sector]: 1.85%
  • South African Stable Funds [low equity sector]: 2.83%
  • South African Income Funds: 5.25%

In contrast, the returns in offshore funds have been much better:

  • Global Equity funds: 21%
  • Global Balanced Funds [High equity sector]: 14.91%
  • Global Income Funds: 2.06%

We do not anticipate much growth in the South African markets and believe that long term investors should be considering increasing their offshore investments!

We asked a few fund managers to give us their thoughts on offshore investing:

Coronation Fund Managers

“For long-term investors, we consistently highlight the benefits of having appropriate levels of international exposure through the investment cycle. While it may be tempting to increase or decrease your international exposure for temporary reasons (such as current sentiment, specific currency expectations or recent returns), having exposure to foreign asset classes is not about the timing. Instead, it is an allocation that should be made with strategic reasons in mind, such as:

  • optimising your portfolio – by allocating money internationally, you reduce the level of risk associated with achieving a specific rate of expected return
  • accessing opportunities outside of our local investment universe – investors who restrict their universe to domestic assets not only miss out on opportunities in industries that are hardly present in the local market (e.g. information technology, biotechnology, electronics, pharmaceuticals) but also on a much wider opportunity set within those industries while gaining access to a more diverse opportunity set
  • your future shopping basket plays a key role – many items in a consumer’s shopping basket (from fuel to food to healthcare) are largely priced in foreign currencies as the inputs are either commodities (with prices struck in global markets), or heavily reliant on imported content. Having adequate international exposure acts as a hedge against the long-term change in prices
  • matching future liabilities in hard currency – this may include expenses such as overseas travel (for leisure purposes or visiting family members living abroad) or business opportunities, investing for a next generation’s education, or emigration.”

 

Duggan Matthews, Chief Investment officer, Marriott Income Specialists

While the global economic recovery is likely to be slow, the first world is set to recover faster than emerging economies, as they have more resources at their disposal to deal with the current crisis.

We’ve found that high-quality, multinational companies listed on first world exchanges – those offering timeless products and brands – have been able to increase their dividends, even during the COVID-19 crisis. In addition, companies of this nature are currently offering very good value as the differential between their current dividend yields and the 10-year US Government Bond yield is the widest it has been in over 30 years. In an environment characterised by historically low interest rates, companies that are able to grow their earnings, and reliably return money to shareholders in the form of dividends, are a highly attractive proposition.

Ninety One

“An offshore investment gives you access to opportunities across different countries, industries, companies and currencies, exposing your portfolio to more possibilities while diversifying your risk. So, while you enjoy life in the country you love, your investment could be discovering a world of investment opportunity.

Benefits of Offshore Investing:

  1. More investment opportunities:
  2. Local investors are limited to a smaller opportunity set as SA makes up less than 1% of world GDP.
  3. When you diversify internationally, you get access to a much wider range of investment opportunities to grow our money across countries, companies and currencies.
  • Diversifying Risk
  • There is a high correlation between emerging markets, so by going offshore it allows clients to properly invest into developed markets.  
  • Local investors not only carry the SA specific political risks, but also the risk of being an emerging market.
  • An emerging market is at the peril of what foreigners think of emerging markets, and what are other emerging markets are currently doing.
  • Maintain your global purchasing power
  • Spreading your investments across markets and currencies, minimizes the impact of currency depreciation or political and market events on your wealth
  • Investing offshore may make it easier to fund any international liabilities and help you meet your international goals.”

Perhaps it is time to re-look at your investment portfolio and consider diversifying offshore. For more information on the offshore investment opportunities please contact us.

Stay safe and well!