Heystek: NDR and your savings – what planet do SA fund managers live on?

After being a lone voice for many years, independent financial advisor Magnus Heystek now has an army of pundits on his side. Latest ‘recruit’ is Coronation Fund Managers which recently maxed out the allowable offshore exposure for Reg28 clients. More supporters are sure to follow after reading Anthea Jeffery’s dissection of the ANC-SACP’s Soviet-made economic blueprint, the National Democratic Revolution. Heystek, a long-time Dr Jeffery ‘groupie’, explains here how the IRR Policy Unit head’s book carries critical messages for all South Africans. – Alec Hogg

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By Magnus Heystek*

I’ve been around local fund managers for more decades than I care to remember, first as a financial journalist for 20 years and then 25 years as an advisor. I can say without any fear of contradiction that South Africa has some of the best fund managers, able to stand their ground against the best of the best around the world.

Many South African fund managers have broadened their investment horizons over the years and headed offshore, either to London or Bermuda, becoming global successes and making fortunes for themselves and their investors. Think of names such as Allan Gray (Orbis), Dr. Simon Marais (Allan Gray/Australia), Stephen Mildenhall (Contrarius), Dawid Krige from Cederberg, Hendrik du Toit and his formidable team at Ninety One. More recently, Sean Peche and Andrew Lapping of Ranmore, (both ex-Allan Gray) have been rattling the cages with their outperformance against peers and the markets.

Fund managers, by nature, are the original alpha males, even if they happen to be female. Sorry, ladies—the asset management industry is still controlled mostly by the male species. (Can I even say that anymore, lest I be unbanked or cancelled?)

Smart, slick, well-dressed, and well-groomed, they are there to impress and persuade investors to become followers. That is their main function, let there be no question about it. Forget about the small disclaimer at the end of all presentations which warns about the risky nature of investments and markets that are legally required. This is a sales job and to hell with the consequences.

Impress a hall filled to the brim with 500-odd financial advisors and the money flows in almost immediately. For the advisors, it’s a good story to tell their thousands of clients. Who doesn’t want to board the express train of an outperforming fund manager? It makes for some often smug after-dinner chats.

But even with the best of the best, one needs to be a little careful and take all prognostications about future returns with a grain of salt. No, rather make that a bucket of salt.

Bold Forecasts:

I’ve previously written about the bold forecast made by exuberant fund managers from Old Mutual, proclaiming in early 2018 that South African equities would be the best asset class in the world going forward over the next five years.

We’ve seen how that confident forecast—carried on the front pages of several media outlets—turned out. Not only have JSE equities been some of the worst performers, but the performance of the Old Mutual range of equities-based funds has been abysmal, returning barely 3-4% over the past five years.

Is there any comeback? No…the fund manager can never be held responsible for any forecast. Your advisor maybe, but not the fund manager.

Read more: Andrew Kenny on Anthea Jeffery’s Countdown to Socialism – Illuminating the ANC’s disastrous path

Countdown to Socialism and Your Investments:

I raise this issue again following the release of Dr. Anthea Jeffery’s new book “Countdown to Socialism” and her interview with Alec Hogg on Biznews. Follow-up reports written by Dave Stewart (FW de Klerk Foundation) and Paul Hoffmann (Accountability Now) further add layers of deep concern to these siren calls.

In short: if Dr. Jeffery is only half right, the NDR will be a major threat to your personal wealth and future investment returns, if it isn’t already.

I have been following Dr. Jeffery’s work for many years and have attended many of her seminars/webinars over the last decade or so. You can almost call me a groupie, such a keen follower have I been.

Her views on the NDR stimulated me many years ago to read more intensely what the ANC says and writes in its often unreported policy documents at lekgotlas and other meetings. And there it always was: almost every policy decision by the ANC currently being rolled out today—including National Health Insurance, BBBEE-quotas, land expropriation, and race-based quotas—have been discussed and analyzed for years, much under the radar and under-reported by the mainstream media.

When Dr. Jeffery speaks, I take notice, and I recommend that everyone else, from the super-rich to the first-time salary earner, take note: The NDR is a threat to your personal wealth, whether you like it or not.

But the NDR is of particular danger to what I call middle-class wealth, people fortunate to have built up some kind of wealth in property, pension, and/or some discretionary investments.

Already the ANC has largely destroyed most property-related wealth, with the exception of the Western Cape. I seem to be the only columnist writing about the calamitous collapse in property values, both commercial and residential. The media has gone silent about this. Instead, it tries to write feeble articles about the latest property hot spot or trend—mostly paid for advertising—but there is no getting away from the fact that for middle and upper-class South Africans, residential property has been an extremely poor investment over the past 15 years and in many cases has become a capital trap. You can’t sell, have a mortgage, and are being squeezed by ever-increasing rates and taxes. It’s a sad story being told in many households across middle- and upper-class South Africa.

In the same week of Dr. Jeffery’s book launch and the mountain of publicity given to it by certain media outlets—not all—several local fund managers were on roadshows/webinars extolling the virtues of investing in the “cheap JSE”. Peter Armitage from Anchor Capital, normally a more rational observer of investment markets, was extolling the future growth of the “low-hanging fruits” currently on the market.

The problem is, I’ve been hearing such confident pronouncements for the best part of ten years now.

David Knee, CEO of M&G investments, went one step further on Citywire describing local listed property as the best asset class for the next five years. A brave call if ever there was one. He might be right, but such a forecast comes with a lot of risk that I most certainly don’t want to take.

Personally, I wouldn’t invest one cent in local listed property, the current very cheap valuations notwithstanding.

Clients of Brenthurst have not been exposed to listed property since 2018 when the market peaked, and the outlook in my view and others looks very bleak.

I’ve heard the clarion call to “buy when everyone is selling” and “buy when there is blood on the streets”, but as far as listed property in South Africa is concerned, I will give it a pass.

Bricks and mortar have taken the full brunt of the economic consequence of the NDR-inspired policies of cadre deployment, which we see almost daily in the slow but steady collapse of road, rail, and water/sewage. Municipal councils all across the country have been raiding the seemingly bottomless pit of cash provided by ratepayers. Some time ago I quoted Neil Goopal from SAPOA who said he wouldn’t invest 1c in commercial property in South Africa if this trend of structural collapse and above-inflation rate increases continue.

I have long had a problem when local fund managers use historical valuations in South Africa as a guide for making forecasts of future returns. I don’t think you can compare the South Africa of 2023 with that of 2003 or even 2013. I also don’t think you should be making historical comparisons without taking into consideration the impact of BEEE, cadre deployment, rampant theft, and corruption, as well as the looming expropriation of property.

Bullish fund managers are, in my view, guilty of deliberately ignoring the impact of these potentially destructive forces on wealth creation in South Africa.

Read more: Anthea Jeffery: Countdown to Socialism in South Africa – unveiling the ANC’s soviet-inspired agenda

Bullish Emerging Markets but not South Africa:

It was, therefore, very encouraging to read the comments by the highly respected Gavin Joubert from Coronation, who runs the R60bn Coronation Global Emerging Market fund and was quoted in Citywire for being bullish on emerging markets, but not on South Africa. In fact, he has no exposure to South African equities in this fund.

“I just find better values elsewhere for my investors,” he was quoted as saying.

Almost on the same day, Business Day published an interview with Carl Leinberger, CEO of Coronation, who was warning about the ever-shrinking JSE, which has lost almost 60% of its listings over the past 20 years. This simply means ever-shrinking opportunities for South Africa-based investors.

Just last week, two listed companies announced their impending departure from the JSE, Liberty2 Degrees and Royal Bafokeng Platinum, while rumors are swirling around a lot of other listed companies, some in the financial sector, looking to exit, such as Sygnia, among others.

It also bears mentioning that Coronation has taken its Reg28 offshore exposure (used in pension and provident funds) to the maximum of 45%, which over the past six months have boosted relative fund returns significantly.

As it is, most South African investors in local pension and discretionary funds are again missing out on one of the most exciting wealth-creating bull markets on the planet right now—the scramble for exposure to AI technology and the companies who will benefit from them, mostly listed on the Nasdaq.

The JSE has virtually zero exposure to AI, and local investors are sitting outside the proverbial candy store looking in—again, like they did over the past 20 years—watching the Nasdaq and technology companies soar and create enormous wealth for investors all over the world—except South Africa. Much of what people see and hear on local media websites is paid advertising, hence the focus on local investment products.

South Africans are great consumers of what these technology and internet-based companies produce, but we don’t invest in them. Think Apple, Google, Netflix, Amazon, Nvidia, Microsoft, etc., but the rest of the world is getting rich, while we are stuck in “undervalued” JSE stocks. An investment of R1m in the JSE All Share index 15 years ago is today worth R4.5m for an annual return around 9% per annum. In the Nasdaq, the same amount of money would have been worth R24m today—for an annual return well above 23% per annum.

The sector is volatile and be prepared for some white-knuckle times, but the returns have made up for the roller-coaster ride.

The large investment companies of the world—Blackrock, Vanguard, Fidelity, etc., have largely ignored South Africa as the market has shrunk so much and it’s not worth setting up offices and infrastructure here. The increasingly popular global funds have tended to set up feeder funds via local platforms such as Boutique Collective Investments (BCI).

In summary: ignore the NDR at your peril. Likewise, the role of the EFF under Julius Malema, who again this weekend was chanting his infamous “kill the boer- kill the farmer” hate-filled speech in front of 100,000 people and in front of a global audience. Also, ignore any fund manager who tries to convince you that these are not matters of concern. They don’t have your future well-being at heart.

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*Magnus Heystek is investment strategist at Brenthurst Wealth. He can be reached at [email protected] and you can follow him on X at @magnusheystek.

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